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Opec: What is it and what is happening to oil prices? Opec: What is it and what is happening to oil prices?
(about 2 months later)
Russia produces more than 10 million barrels of oil a dayRussia produces more than 10 million barrels of oil a day
The world's major oil exporters have agreed to cut production by two million barrels a day. Several of the world's largest oil exporters have said they are cutting their production levels, which has caused a leap in crude prices.
Members of oil producers' group Opec+ - which includes Russia - are taking the action to help boost oil prices. Saudi Arabia, Iraq and several Gulf states are together cutting supplies by one million barrels of oil a day and Russia, their fellow member in the Opec+ group, is extending its cut of half a million barrels per day until the end of the year.
The cost of oil has dropped back since June, when concerns over Russia's invasion of Ukraine sent it soaring. The move has ben criticised by the White House.
What is Opec+?What is Opec+?
Opec+ is a group of 23 oil-exporting countries which meets regularly 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 Organization of the 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. 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 other 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."
The organisation can also lower prices by putting more oil onto the market.The organisation can also lower prices by putting more oil onto the market.
Why is Opec+ cutting oil output?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 most recent cut, of 1.16 million barrels a day, follows a cut of two million barrels a day in October 2022.
The cut, which will take effect from November, represents around 2% percent of the global oil supply and is larger than expected. It immediately led to a 5% rise in the oil price on international exchanges.
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. "It came as a complete surprise," says Ms Dourian, "because Saudi Arabia had said recently that its production quotas would remain in place for the rest of the year.
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. "It may be a pre-emptive move by Opec+, because it feels world demand for oil won't be as robust as was previously forecast."
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. In 2020, the group cut production by more than nine million barrels per day in response to the pandemic. As countries went into lockdown, the price of crude oil crashed because of a lack of buyers.
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". Following Russia's invasion of Ukraine, prices soared to over $130 a barrel but by March this year, they had fallen to 15-month lows, down to little above $70 a barrel.
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. Rising oil prices will probably push up petrol prices again in the UK and around the world, adding to cost-of-living pressures.
Former UK Prime Minister Boris Johnson also asked Saudi Arabia and the United Arab Emirates to boost production without success. The US has called the latest move by Opec+ "inadvisable".
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.
"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 ten million barrels a day, to help drive the price back up.
Since then, the group has slowly increased production as demand has also grown.
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.
The price had dropped back since then, prompting speculation that Opec+ would cut production.
What's happening with Russian oil?What's happening with Russian oil?
Russia's Vladimir Putin and Opec's secretary general Mohammad BarkindoRussia's Vladimir Putin and Opec's secretary general Mohammad Barkindo
After Russia invaded Ukraine, many countries bought less Russian oil and its price started to fall. After Russia invaded Ukraine, EU countries stopped importing all Russian oil transported by sea and countries such as the US and UK stopped buying it altogether.
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. Russia is now exporting more crude to India and China, which did not join the Western sanctions against Moscow.
India and China - who did not join the Western sanctions against Russia - now account for over half of the country's seaborne oil exports. However, the G7 group of nations are keeping Russia's oil revenues low by imposing a price cap of $60 a barrel on oil that it exports.
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?Can the world cope without Russian oil and gas?
Cheaper Russian oil is attracting new Asian marketsCheaper Russian oil is attracting new Asian markets
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