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OPEC+ countries decided to limit production. How will this affect prices

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Oil prices are rising after Saudi Arabia said it would cut production by another million barrels a day starting in July. Other OPEC+ members over the weekend pledged to maintain already existing supply cuts until the end of 2024.

Over the weekend, a meeting of the countries belonging to OPEC+, i.e. the Organization of the Petroleum Exporting Countries and its allies, was held, during which the volume of oil production in the near future was discussed.

During the meeting of oil ministers with OPEC+ Saudi Arabia announced that in July it will make an additional cut of oil supplies by 1 million barrels per day (to 9 million barrels per day), which will bring production to the lowest level in several years.

Other OPEC+ members over the weekend pledged to maintain already existing supply cuts until the end of 2024. Russia did not declare further reductions in oil production, a United Arab Emirates secured a higher amount of oil supplies for next year.

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OPEC+ accounts for around 40 percent. world oil reserves, and its decisions may have a significant impact on oil prices.

According to Reuters, so far OPEC+ has reduced production by 3.66 million barrels a day, which corresponds to 3.6% of GDP. global demand for this raw material. A production cut of 2 million barrels was agreed in 2022, and in April 2023, countries voluntarily committed to cuts of 1.66 million barrels. This limit was supposed to remain in force until the end of this year, but during a weekend meeting it was decided to extend it until 2024. From the beginning of next year, production is to fall by 1.4 million barrels a day.

“Saudi lollipop”

On Sunday, Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, said the 1 million barrels a day production cut could be extended if necessary. “It’s a Saudi lollipop,” he said in what is seen as an attempt to stabilize the market.

– We wanted to add icing to the cake. We always want to add suspense. We don’t want people trying to anticipate our moves. This market needs stabilization, said the Saudi minister.

Saudi Arabia is the only OPEC+ member with enough spare production and storage capacity to easily scale back and forth.

Oil prices are rising

On Monday at approx. At 8:00 a.m., the price of a barrel of Brent crude oil on the London Stock Exchange increased by 1.10 percent to USD 76.97, and the US WTI on the New York Stock Exchange by 1.18 percent to USD 72.59.

On Friday, a barrel of Brent crude oil closed at $76.13 and US WTI at $71.74.

On the day of Russia’s invasion of UkraineOn February 24, 2022, a barrel of Brent was $99 and WTI was priced at $92.8. At the climax of the increase in oil prices, they reached USA to USD 130 per barrel, and in Europe they were close to USD 140 per barrel.

Main photo source: RachenStocker/Shutterstock

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