OPEC’s cuts might mean higher gas prices, which could force other energy players to step up
April showers bring… May oil-production cuts. The world’s largest coalition of oil-producing countries surprised everyone on Monday with a doozy: the Saudi Arabia-led Organization of the Petroleum Exporting Countries and its oil-pumping allies (including Russia) agreed to curb production. OPEC+ plans to slash oil output by 1M+ barrels/day for the rest of the year, starting next month.
Classic supply ’n’ demand: Oil prices had their slickest daily gain in over a year on Monday after word that supply would be lower. Energy stocks like Exxon, Chevron, and Shell also got a bump.
Uh-OPEC: It’s a big blow to President Biden, who’s tried and failed to persuade OPEC members to boost production, which would lower US gas costs (#PumpAnxiety).
Saudi Arabia said it was a precautionary move to ward off falling oil demand. Jitters over the banking crisis and a global recession have led to an oil selloff in recent months.
Bidin’ time… but there’s not much the pres can do. OPEC+ countries produce over half the world’s oil, and OPEC (minus the plus) accounts for 60% of global petroleum trade. Last year the Biden admin’s intense lobbying effort failed to dissuade OPEC from throttling production. The news could mean higher prices at the pump for consumers (gas futures spiked after the announcement). Since the economy runs on oil and gas (think: shipping, manufacturing) the cuts could also lead to a broader inflationary spike.
There’s a silver lining for everyone… The news will likely be a positive for OPEC countries and corporate oil titans, who’ve already enjoyed years of exorbitant profits on the back of rising prices. But it could also boost demand for US oil in Europe and Asia, and encourage non-OPEC producers to increase output. Plus: it might fuel support for clean energy.