Sunday’s decision comes after the group sparked a diplomatic storm at its last meeting in October, when it agreed to cut production by 2 million barrels a day. The move drew a sharp rebuke from the White House and a vow from President Biden to inflict “consequences” on Saudi Arabia, the organization’s most powerful member.
But projections that the October cut would send gas prices skyrocketing and generate an infusion of new funds for Russia to fund its war on Ukraine have proven wrong. Just weeks after the consortium announced the cut, oil prices began to fall. Gasoline is now cheaper than it did in nine months, with consumers paying lower prices than they were paying just before Russia launched its invasion.
U.S. gasoline prices plunge toward $3 a gallon as global demand plummets
On Sunday, the average price of a gallon of regular gasoline in the United States was $3.41, according to AAA, down sharply from its June high above $5.
The fall in oil and gas prices is largely due to a drop in demand amid fears of a global recession, new covid lockdowns in China and the effects of soaring interest rates in the United States. United. Meanwhile, some key US oil refineries that were down for maintenance and repairs have come back online, adding to the global fuel supply.
All of these forces have put OPEC Plus in a tight spot. The leader of the group, Saudi Arabia, was under pressure from the United States to either increase production or at least block any further production cuts. But current market conditions, characterized by falling prices, justified the cuts advocated by the Saudis in October, despite the diplomatic fury they unleashed.
The organization said in a statement on Sunday that the October cut “was purely driven by market considerations and retrospectively recognized by market participants as having been the necessary and appropriate course of action to stabilize the global oil market.” .
The next OPEC Plus meeting to reconsider production is scheduled for June. But the group said in its statement that the timetable could change and that it could “meet at any time and take immediate additional measures to address market developments and support the balance of the oil market and its stability. if necessary”.
Amid internal OPEC Plus deliberations over the weekend, an agreement was reached on Friday by Ukraine’s allies to impose a cap on the price of Russian oil. The cap, set by the Group of Seven countries and Australia, aims to keep Russian oil flowing to certain global markets, but to limit the amount of profit the Kremlin can make to fund its war machine.
The countries are enforcing the price cap just as a European ban on imports of Russian oil goes into effect on Monday. Since this ban does not apply to other parts of the world that still buy from Russia, the price cap is seen as an additional tool to limit Russia’s oil revenues. Europe and the United States will enforce the measure using their significant control over oil tankers and the companies that provide them with insurance.
OPEC Plus was closely watching European deliberations on the price cap, as it poses a direct threat to its control over oil markets. The cap essentially functions as a “buyers cartel” in which countries band together to influence the price that oil producers can charge.
“An institutionalized buying cartel could threaten to erode OPEC+’s pricing power,” research firm ClearView Energy Partners wrote in a note to clients late last week.
The cap agreement proved to be a difficult balancing act, as some European countries, such as Germany, feared that setting the price too low would prompt Russia to retaliate by cutting off supplies, causing oil prices to skyrocket around the world. Other countries, especially in Eastern Europe, wanted a much lower price to inflict pain on Russia.
But the countries were finally able to agree on $60 a barrel, which is roughly the amount at which Russia can sell its oil without a cap. The move likely allayed concerns among OPEC Plus members that the cap would reduce their influence in oil markets.
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