Amidst accusations of coercion and political ploys, the Organization of Petroleum Exporting Countries (OPEC) plus other oil-producing countries, including Russia, announced on October 5 that it would be cutting oil production output by 2 million barrels per day, despite an already tight market.
The White House has ramped up its verbal disagreement with Saudi Arabia recently, accusing the country of coercing other countries to agree to the oil production cuts in a political move that would benefit Russia financially. OPEC+ countries have refuted the accusations, staunchly defending the decision as an economic one based on technical indicators, and was voted for unanimously.
“The emphasis on the word ‘technical’ also suggests that these member states are sending a message to the U.S. that they are not a party in this row between Riyadh and Washington,” Umer Karim, research fellow at the University of Birmingham, told Reuters.
Analysts have previously stated that cuts could reduce the volatility that oil markets have experienced this year and encourage price recovery. Crude oil was previously $80 a barrel before the announcement but rallied to $97 a barrel and is currently selling for $92.50 as of 10/18/2022.
The Department of Energy has scheduled to release 10 million more barrels from the Strategic Petroleum Reserve in November in response to the announcement and as part of broader efforts by the Biden administration to help ease the market disruption caused by Russia’s ongoing war on Ukraine.
“OPEC’s decision also highlights the importance of strengthening U.S. energy independence and scaling up domestic renewable energy capacity,” wrote Luke Oliver, managing director, head of climate investments, and head of strategy at KraneShares in a recent post on the Climate Market Now blog.
Reactions to the OPEC+ announcement as well as the response from the U.S. have had minimal impact on the carbon markets thus far, although in the shorter term a reduction in supply could equate to lowered emissions from industries having to cut back on production as the cost of oil rises.
“If that occurs, carbon markets could see some macro impact if higher oil prices serve as the ‘tipping point’ for knocking us into a global recession, as the International Energy Agency (IEA) warned could happen in a recent report. However, production could be stepped up in other areas, as we are seeing now with talks of easing sanctions on Venezuela,” Oliver wrote.
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