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Oil prices have soared. Why won't Opec bring them down? Opec: What is it and what is happening to oil prices?
(30 days later)
Russia produces over 10 million barrels of oil a day and helps Opec keep prices high Russia produces more than 10 million barrels of oil a day
The world's major oil exporters have agreed to raise their production slightly in September, to help ease soaring prices. The world's major oil exporters have agreed to cut production by two million barrels a day.
Members of oil producers' group Opec+ - which includes Russia - will jointly increase output by 100,000 barrels a day. This follows an increase of 600,000 barrels a day in July and August. Members of oil producers' group Opec+ - which includes Russia - are taking the action to help boost oil prices.
Oil importing countries had wanted a bigger increase than that, to bring down oil prices. The cost of oil has dropped back since June, when concerns over Russia's invasion of Ukraine sent it soaring.
What is Opec+?What is Opec+?
Opec+ is a group of 23 oil-exporting countries which meets every month in Vienna to decide how much crude oil to sell on the world market. Opec+ is a group of 23 oil-exporting countries which meets regularly to decide how much crude oil to sell on the world market.
At the core of this group are the 13 members of Opec (the Organisation of Oil Exporting Countries), which are mainly Middle Eastern and African countries. Opec was formed in 1960 as a cartel, with the aim of fixing the worldwide supply of oil and its price.At the core of this group are the 13 members of Opec (the Organisation of Oil Exporting Countries), which are mainly Middle Eastern and African countries. Opec was formed in 1960 as a cartel, with the aim of fixing the worldwide supply of oil and its price.
Today, Opec nations produce around 30% of the world's crude oil, about 28 million barrels a day. Saudi Arabia is the biggest single oil producer within Opec, producing more than 10 million barrels a day. Today, Opec nations produce around 30% of the world's crude oil. Saudi Arabia is the biggest single oil producer within Opec, producing more than 10 million barrels a day.
In 2016, when oil prices were particularly low, Opec joined forces with 10 non-Opec oil producers to create Opec+. In 2016, when oil prices were particularly low, Opec joined forces with 10 other oil producers to create Opec+.
Those new members included Russia, which also produces over 10 million barrels a day.Those new members included Russia, which also produces over 10 million barrels a day.
Together, these nations produce about 40% of all the world's crude oil.Together, these nations produce about 40% of all the world's crude oil.
"Opec+ tailors supply and demand to balance the market," says Kate Dourian, of the Energy Institute. "They keep prices high by lowering supplies when the demand for oil slumps.""Opec+ tailors supply and demand to balance the market," says Kate Dourian, of the Energy Institute. "They keep prices high by lowering supplies when the demand for oil slumps."
Opec+ could also lower prices by putting more oil onto the market, which is what major importers like the US and UK want it to do. The organisation can also lower prices by putting more oil onto the market.
Why are oil prices so high? Why is Opec+ cutting oil output?
At its first face-to-face meeting in Vienna since March 2020, Opec+ members agreed to cut production from August 2022 levels by two million barrels per day to less than 42 million barrels.
The cut, which will take effect from November, represents around 2% percent of the global oil supply and is larger than expected.
It is the biggest reduction by Opec+ since 2020, when it cut production by more than nine million barrels per day in response to the pandemic.
The move is designed to boost the cost of oil, which has fallen below $90 (£80) from a peak of $122 (£108) in June. Prices rose after the announcement.
Rising oil prices had pushed up petrol prices in the UK and around the world, and in turn, helped drive up inflation, which reached a 40-year-high in the UK.
The US had asked Opec+ not to go ahead with the cuts, partly because lower prices mean less revenue for Russia. The White House called the decision "short-sighted".
In July, US President Biden visited Saudi Arabia, the largest oil producer within Opec+, to ask Crown Prince Mohammed bin Salman to increase oil production. He refused.
Former UK Prime Minister Boris Johnson also asked Saudi Arabia and the United Arab Emirates to boost production without success.
Why did oil prices soar?
In spring 2020, as Covid spread around the world and countries went into lockdown, the price of crude oil crashed because of a lack of buyers.In spring 2020, as Covid spread around the world and countries went into lockdown, the price of crude oil crashed because of a lack of buyers.
"Producers were paying people to take the oil off their hands, because they didn't have enough space to store it all," says Ms Dourian."Producers were paying people to take the oil off their hands, because they didn't have enough space to store it all," says Ms Dourian.
After this, Opec+ members agreed to slash production by 10m barrels a day, to help drive the price back up. After this, Opec+ members agreed to slash production by ten million barrels a day, to help drive the price back up.
In June 2021, with demand for crude beginning to recover, Opec+ started gradually increasing supply, putting an extra 400,000 barrels a day onto world markets. In July and August, it added an extra 600,000. It will add an extra 100,000 in September. Since then, the group has slowly increased production as demand has also grown.
However, it is still supplying some two million barrels a day less than in spring 2020. But when Russia invaded Ukraine, the price of crude soared to well over $100 a barrel. The markets were worried the global sanctions could lead to a shortage of Russian oil.
When Russia invaded Ukraine, the price of crude soared to well over $100 a barrel, because of panic on the markets. This has caused significant rises in the price of petrol at the pumps. The price had dropped back since then, prompting speculation that Opec+ would cut production.
Why filling up your car could soon cost £100 What's happening with Russian oil?
"When Opec+ cut supplies by 10 million barrels a day in May 2020, they cut too deep," says David Fyfe, chief economist at Argus Media.
"Now they're increasing supply at a slow rate that does not take into account the effects of the Russia-Ukraine crisis."
There is a fear among oil buyers that the EU will follow the US and impose an embargo on oil imports from Russia, says Mr Fyfe. Europe currently imports over two and a half million barrels of crude a day from Russia.
"The threat of an embargo on Russian oil has spooked the markets," he says, "because it could lead to an acute supply squeeze."
Can the world cope without Russian oil and gas?
Why won't Opec+ boost oil output?
US President Joe Biden has repeatedly appealed to Saudi Arabia to increase its oil output without success.
UK Prime Minister Boris Johnson also asked Saudi Arabia and the United Arab Emirates to boost production. He too was rebuffed.
Boris Johnston was unable to persuade Saudi Arabia and others to increase their oil production
"Saudi and the UAE have spare capacity, but they are refusing to increase output on their own," says Kate Dourian. "They don't want to be dictated to by the West.
"They are saying that the gap between supply and demand is narrowing, and that today's high prices simply reflect panic on the part of oil buyers."
Other Opec+ nations are struggling to increase output.
"Producers like Nigeria and Angola have been undershooting their production quotas by a collective million barrels a day over the past year," says David Fyfe.
"Investment fell off during the pandemic - and oil installations, in some cases, haven't been well maintained. Now, they're discovering they can't actually deliver production increases in full."
Russia's Vladimir Putin and Opec's secretary general Mohammad BarkindoRussia's Vladimir Putin and Opec's secretary general Mohammad Barkindo
What does Russia want? After Russia invaded Ukraine, many countries bought less Russian oil and its price started to fall.
Opec+ also has to respect Russia's wishes, since it is one of the two biggest partners in the alliance. At one point Russian crude was more than $30 a barrel cheaper than Brent crude oil, the international oil benchmark. By the end of September, it was around $20 a barrel cheaper.
"The Russians are happy with prices at this level," says Carole Nakhle, CEO of Crystol Energy. "They have nothing to gain in seeing them go lower. India and China - who did not join the Western sanctions against Russia - now account for over half of the country's seaborne oil exports.
"Opec wants to keep good relations with Russia, so they are most likely to continue with the agreement they all made last year. That means increasing crude supplies very gradually from now until September." Russia is now China's biggest supplier of oil, taking over from Saudi Arabia.
In March this year, China and India imported more oil from Russia than the 27 EU member states.
The EU plans to impose an embargo on Russian crude oil from 5 December. It will apply to crude shipped by tanker and most piped supplies.
Can the world cope without Russian oil and gas?
Cheaper Russian oil is attracting new Asian markets