A new cut in oil production by OPEC countries was decided at the meeting of the Organisation of the Petroleum Exporting Countries on 4 June.
The aim, the organisation explains, is to protect the price of crude oil. The effect being an increase in the cost of oil and its derivatives.
What is OPEC
OPEC is the Organisation of Petroleum Exporting Countries, an economic organisation that brings together the world’s major oil producing and exporting countries. Thus including Saudi Arabia, the United Arab Emirates, Venezuela, Iraq, Iran, etc., for a total of fourteen member countries.
The OPEC countries control 79% of the world’s proven oil reserves and contribute 39% of the world’s oil production.
The organisation’s task is to negotiate between exporting countries and oil companies on various aspects of oil production, prices and concessions.
New oil production cut
One of the main tools used by OPEC to control oil prices on a global scale is through production control.
Specifically, at certain times, OPEC, following a meeting of member states, can decide whether to reduce oil production among member states by setting a cap on daily production.
On Sunday, 4 June, OPEC member states met in a summit attended by several non-OPEC oil producing countries. The aim of the summit was to set a ceiling on daily oil production to counter the oil price restraint measures that have been implemented, especially in Europe.
The summit therefore decided on a limit of 40.46 million barrels per day for 2024. While oil production for 2023 will remain unchanged.
OPEC’s goal is to improve market stability. And, to set the price of oil more firmly, which currently fluctuates between 70 and 75 dollars per barrel. A price considered relatively low by OPEC countries.
Saudi Arabia cuts oil production
While OPEC is not expected to reduce oil production in 2023, some of its members may already reduce extractions in the coming months.
This is the case with Saudi Arabia. Which will start a voluntary reduction of its oil production as early as July 2023. Thus reducing the daily barrels produced in the country by one million.
What effect will the production cuts have?
As has already happened in the past, cuts in oil production inevitably cause a reduction in supply. And, like demand, this translates into a direct increase in the price of oil and its derivatives.
Consequently, the cut will lead to an increase in the price of petrol and diesel and indirectly to an increase in the cost of energy.
Even if the latter appears to be more limited due to the transformations made in the energy field as a result of the decreasing dependence on fossil fuels in world energy production.