The world’s biggest oil exporters met on October 5, amid calls from around the world to lower the price of oil.
Prices hit their highest levels in eight years in June. Since then, they have lost strength, but remain at a historically high level.
In this scenario, importing countries asked members of the oil producer group, OPEC+, to increase their supplies.
However, the main OPEC+ countries seem unwilling to help.
Against the wishes of importing countries, the world’s largest oil exporters reached an agreement to reduce production by 2 million barrels a day.
The group, which includes Russia, aims to keep oil prices high even amid weakened demand as the global economy slows.
What is OPEC+?
OPEC+ is a group of 23 oil-exporting countries that meet 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 (Organization of Petroleum Exporting Countries), which are mainly countries in the Middle East and Africa. OPEC was formed in 1960 as a cartel, with the aim of fixing the world’s oil supply and its price.
Today, OPEC countries produce about 30% of the world’s crude oil. Saudi Arabia is OPEC’s biggest oil producer, 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+.
These new members included Russia, which also produces more than 10 million barrels a day.
Together, these nations produce around 40% of all the world’s crude oil.
“OPEC+ adapts supply and demand to balance the market,” says Kate Dourian of the Energy Institute in London. “They keep prices high by reducing supply when demand for oil drops.”
The organization can also lower prices by putting more oil on the market.
Why is OPEC+ reducing oil production?
At their first in-person meeting in Vienna since March 2020, OPEC+ members agreed to reduce production from August 2022 levels by two million barrels a day to less than 42 million barrels.
The cut, which will take effect from November, represents about 2% of global oil supply and is larger than expected.
It is OPEC+’s biggest reduction since 2020, when the group cut production by more than 9 million barrels a day in response to the pandemic.
The move is designed to boost the price of oil, which has fallen below $90 (R$468) from a high of $122 in June. Prices rose after the announcement.
The rise in oil raised gasoline prices around the world and contributed to rising inflation in countries.
The United States has asked OPEC+ not to go ahead with production cuts, in part because lower prices mean less revenue for Russia. The White House called the decision “shortsighted”.
In July, US President Joe Biden visited Saudi Arabia, OPEC+’s biggest oil producer, to ask Crown Prince Mohammed bin Salman to increase oil production. The Saudi leader refused.
Former British Prime Minister Boris Johnson has also asked Saudi Arabia and the United Arab Emirates to increase production, to no avail.
Why have oil prices soared?
In 2020, as Covid-19 spread across the world and countries went into lockdown, the price of oil plummeted due to a lack of buyers.
“The growers were paying people to take the oil out of their hands because they didn’t have enough space to store everything,” says Dourian.
After that, OPEC+ members agreed to reduce production by 9.7 million barrels a day to help drive up the price.
Since then, the group has slowly increased production as demand has also grown.
When Russia invaded Ukraine, the price of oil soared to over $100 a barrel. Markets were worried that global sanctions could lead to shortages of Russian oil.
The price has since fallen, prompting speculation that OPEC+ would cut output.
After Russia invaded Ukraine, many countries bought less Russian oil and its price began to fall.
At one point, Russian oil was more than $30 a barrel cheaper than Brent oil, the international benchmark in the oil market. At the end of September, it was about $20 a barrel cheaper.
India and China – which did not take part in sanctions against Russia over the war in Ukraine – now account for half of the country’s oil exports.
Russia is now China’s biggest oil supplier, replacing Saudi Arabia.
In March of this year, China and India imported more oil from Russia than the 27 member states of the European Union.
The EU plans to impose an embargo on Russian crude from 5 December. The embargo will apply to crude oil shipped by tankers and most piped supplies.
In Brazil, the rise in fuel prices led President Jair Bolsonaro (PL), candidate for reelection, to reduce the ICMS (Tax on Circulation of Goods and Products) on these products.
Along with the drop in the barrel of oil since June, the measure contributed to the reduction in the price of gasoline, diesel and cooking gas and to the deflation registered in July and August.
Now, with oil prices on the rise again, the expectation would be a price readjustment by Petrobras. But, on the eve of the second round of the elections, the oil company informed that it considers the recent increases in oil to be “speculative movements”, insufficient for readjustments.
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