OPEC+ has cut oil production by a million barrels a day. To reach this number, Saudi Arabia, Kuwait, UEA, Iraq and Algeria all reduced their output. The news sent oil prices on a wild ride higher as Brent crude reached nearly $84 a barrel. And, according to several experts, that move is on its way to $100. (These are the most corrupt countries in the world.)
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The last time oil reached $100 a barrel was the start of the Russian invasion of Ukraine in February 2022. Russia is one of the world’s largest oil producers. Analysts assumed its exports would be curtailed. The shock of the invasion’s effect on global energy went away within a few short months, and the price of crude fell.
The move by the Organization of the Petroleum Exporting Countries and other oil-producing countries aligned with it is nothing like the one at the beginning of the invasion. This calculated move is fairly permanent. It will not change because of war or disruption to supply.
The OPEC+ decision begins as some of the world’s largest economies come back from the brink of what was supposed to be a recession. China, the world’s largest oil consumer, had an economy brought down by the aggressive spread of COVID-19. Gross domestic product and consumer spending have rebounded completely in the world’s most populous country. With that, there is a need for more crude.
Moves by OPEC+ were enough to overwhelm the rebound in U.S. oil production, which was helped by a return of fracking. The practice had dropped when oil prices went low enough so that it was no longer profitable.
The world appeared ready to dodge a recession, particularly one triggered by inflation. A sharp rise in oil prices could change that. Particularly in the United States, the OPEC+ decision will affect gasoline prices, petrochemicals prices and the cost of jet fuel and home heating. Fortunately, the United States has begun to move into a period of temperate temperatures due to spring weather.
Suddenly, the strong belief that oil prices would stabilize around $75 is over. With it, the chance of a recession starts to grow.
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