On Monday, April 3rd, OPEC+ announced that they were cutting oil production and output. This immediately caused the global cost of a barrel of oil to go up 5.31% to $84.13 while also driving up the U.S. barrel cost by 5.48% leaving the price at $79.83. Earlier this year oil prices sunk as low as $73 and $67 a barrel due to the collapse of the Silicon Valley Bank (SVB) on March 10th.
Many Economists are now concerned with how this might affect inflation in the long run. After all, now that we are seeing continuous inflation reflected in the value of oil we can expect overall consumption to decrease. Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown states, “The development comes as a blow for inflation,” and.“Markets are aware that if the pressure continues, central banks will need to extend or strengthen their interest rate hiking cycles.”
OPEC+ plans to continue these voluntary oil cuts from May 2023 to the end of the year in January. In October OPEC voluntarily cut out oil production by almost 2 million barrels a day and plans to cut production by another half a million barrels per day.
However, they are not the only country to participate in a voluntary cut in oil production. Iraq plans to cut 211,000 barrels per day, and UAE plans to cut 144,000 barrels per day. Countries such as Kuwait, Algeria, and Oman will also reduce oil output by 128,000, 48,000, and 40,000 barrels per day. In conclusion, the United States can surely expect a surge in price, even larger than the current surge. This now seems to be a global trend, and I am curious to see how the federal reserve will respond in terms of Interest Rates and other monetary policies to slow certain inflation.
https://www.cnn.com/2023/04/02/business/opec-production-cuts
5 comments:
Great post! This has enormous effects on the U.S. economy as we are still energy dependent and look to import oil from OPEC countries. Another thing to note on this is that these OPEC countries are starting to stop using the dollar which increases the price of importing oil even more. I am curious to see how much other commodities cost for Americans as de-dollarization is hitting oil as well as supply cuts.
As it is mentioned above, cutting down oil production and output will definitely impact the economy in the short and long run. The immediate impact of the announcement by OPEC+ to cut oil production and output has resulted in a 5.31% and 5.48% increase in the global and U.S. cost of a barrel of oil, respectively. This will lead to an increase in prices of other goods and services that are directly or indirectly dependent on oil. The increase in oil prices will result in an increase in the prices of other goods and services. This, in turn, will decrease overall consumption as people will have less disposable income to spend on other things. Many economists are concerned about how the increase in oil prices will affect inflation in the long run. If inflation continues to rise, central banks will need to extend or strengthen their interest rate hiking cycles, which could lead to higher borrowing costs for individuals and businesses
I think that it is very concerning to see oil prices rise given the current economy. Many consumers are already frustrated with the rise in prices. I think that there is definitely a reason to be concerned about how this will impact inflation. It will be interesting to see how markets will respond as more countries are cutting oil production.
The United States has a few options on where to go from here. We may have to start looking at other places to get oil instead of from OPEC, as they are able to continue to cut supplies and force gas prices up. The US could also focus more on getting oil from our own reserves, although i believe we should keep that for the future. Lastly, we could wait out OPEC and allow the prices to rise until they allow more barrels to be sold again.
It does not surprise me that OPEC has decided once again to cut oil production, considering their decrease at the end of last year. I hope this will encourage further research into renewable resources that ultimately will not hurt the environment as much as the extraction, production, and use of oil does. I recognize that this is not good news currently because it will further impact inflation, which will ultimately encourage the federal reserve to increase interest rates even further, but I am excited to see you how old is shift in oil production impacts the perspective of energy use overall.
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