OPEC oil cut move to reduce oil output could harm international attempts to lower the price of oil, according to experts.
In light of the continued worldwide unrest, the intergovernmental organization yesterday (5 October) unveiled intentions to “improve the long-term advice for the oil market.”
Also, it proposed 10 additional “proactive and pre-emptive” steps, including a two million barrel per day reduction in oil production beginning in November of this year.
Since Russia invaded Ukraine and its assets were almost immediately banned, including its oil supplies, which the nation was a major role in, oil reserves and production have been under pressure.
Since then, there have been erratic and growing prices, which have contributed to the inflation rates’ ascent.
OPEC’s action is intended to target and reduce this uncertainty, but Jamie Maddock, an equity research analyst at Quilter Cheviot, warned that it may instead exacerbate the issue.
In an effort to lower the price of oil and increase, but manage, the supply, he stated that during the energy crisis, a strategically planned, worldwide coordinated oil reserve release had taken place.
Aiming to “assist consumers at a time when inflation has skyrocketed and the expense of living has intensified,” Maddock said this initiative has been spearheaded by the US.
The move from OPEC, according to Maddock, “may imply that the gains of this project are offset if this change is completely implemented” while the operation is still in progress.
Given the looming EU embargo on Russian oil and the introduction of product shipping insurance the next year, which “would probably have an impact on output and so also hurt supply at a time when OPEC is cutting and hence pushing prices higher,” he added that this was a critical problem.
Maddock suggested that one solution to the EU prohibition could be a cap on the price paid for Russian oil because there could be a double headwind arriving to the already strained oil price.
