On Monday, the oil prices increased significantly because major oil producers of the world decided to cut the amount of oil they produce by over a whopping million barrels. At the same time, most stock markets soared due to new information showing that inflation in the US and Europe has decreased recently.
Organization of the Petroleum Exporting Countries(OPEC+) announced a surprise cut of over a million barrels of oil output. This decision led to a rapid surge in oil prices, with both major crude contracts soaring nearly six percent%. The cut in output resulted from an agreement between top OPEC members Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, Algeria, and Oman, as well as top non-OPEC oil-exporting nations.
The last time such a drastic cut occurred was in October 2020, when the group slashed two million barrels daily. This time, the decision was further supported by Russia’s commitment to extend their own 500,000 barrels per day cut.
According to the official Saudi Press Agency, a Saudi emphasized that “this is a precautionary measure aimed at supporting the stability of the oil market.”
This oil price hike might lead to higher interest rates in central banks. National Australia Bank’s Tapas Strickland stated, “The production cut, coming at a time of an uncertain global demand environment, clearly shows OPEC was not happy with the movement in the oil price, which had fallen over recent months.”
The oil prices had decreased over the past year because of a fear of recession due to the sanctions put on Russia over the Ukraine invasion. The decision to cut output could harm the markets, which had been doing well recently because people thought that problems in the banking sector might make the US Federal Reserve stop raising interest rates earlier than planned.
Despite these concerns, Asian trading floors remained optimistic as most markets tracked a strong rally on Wall Street in response to news that US and eurozone price rises had slowed further.
What do you think will be the long-term impact of this output cut? Share with us in the comment section below!
