The reduction in oil production means that there will be a relative shortage in the supply of the product.
Recent actions by some members of the Organization of the Petroleum Exporting Countries (OPEC) and its allies labeled OPEC+ to cut oil production from May may significantly cause a setback for most of the country’s central banks. While Saudi Arabia and its main allies, including the United Arab Emirates and Kuwait, are expected to cut production by more than a million barrels a day, the 500,000 cuts planned by Russia have brought the number to 1, 6 million barrels.
Big oil consumers like the United States are bound to bear the brunt of the oil cut at a time when it looks like the Federal Reserve is winning the fight against inflation. Authorities have condemned the decision of the 8 participating members of OPEC+ to cut planned production.
“We don’t believe cuts are desirable at this time, given the market uncertainty – and we’ve made that clear,” a spokesperson for the US National Security Council said, according to a report. Reuters report.
Countries around the world are moving away from US dependency, with yuan-dominated exchanges gradually taking center stage. Although there are no major reasons for the planned production cut, Saudi Arabia said in a statement as previously reported by Coinspeaker that the measures are aimed at stabilizing the market.
Inflationary effect of OPEC+ oil production cut
There are many dynamics surrounding the slowdown in production, which will further strain the global oil quota, as previously agreed by OPEC as a body.
The reduction in oil production means that there will be a relative shortage in the supply of the product. With increasing demand in all countries, this can significantly increase the value of oil relative to its price at the pump. Based on current projections, there is a good chance that this price will exceed $100 from the current $80.11 for West Texas Intermediate (WTI)
In both product-based and consumption-based economies, a higher selling price of oil is also charged to drive up the price of items considerably. In this way, the fight against inflation throughout the year through consistent and targeted rate hikes will be hampered.
“The projected increase in oil prices for the rest of the year following these voluntary cuts could fuel global inflation, prompting a more hawkish stance on interest rate hikes from central banks around the world. It would, however, reduce economic growth and reduce oil demand expansion,” Rystad Energy’s Victor Ponsford said in a research note.
This will not be the concern of the United States alone, but of all the countries still struggling with inflationary growth.
Just a month away from the planned plan, it is likely that mediation will be used to get these OPEC+ members to change their plans before the end of the year. Such diplomatic missions, however, can be difficult as these countries are great allies of Russia with the US notably accusing these nations of parleying with the sanctioned country.
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