Oil Prices Have Soared. Why Won't Opec Bring Them Down? - BBC

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HomeNewsSportBusinessInnovationCultureArtsTravelEarthAudioVideoLiveWeatherNewslettersOpec: What is it and what is happening to oil prices?5 June 2023ShareSaveShareSave
Getty Images A Russian oil rig in the ArcticGetty Images
Russia produces more than 10 million barrels of oil a day

Saudi Arabia has announced it will be cutting its production of crude oil by a million barrels a day to try to boost prices.

Other members of the oil producers' group Opec+ agreed to keep their output levels unchanged, having made cuts of more than one million barrels a day last April.

Oil analysts do not expect the most recent cut to cause a big rise in world crude prices.

What is Opec+?

Opec+ is a group of 23 oil-exporting countries which meets 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 the Petroleum Exporting Countries), which are mainly Middle Eastern and African nations. Opec was formed in 1960 as a cartel, which aimed to fix the worldwide supply of oil and its price.

Opec nations produce about 30% of the world's crude oil. Saudi Arabia is the biggest single oil supplier within the group, 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+.

One of the members of the expanded group is Russia, which also produces more than 10 million barrels a day.

Together, Opec+ countries produce about 40% of all the world's crude oil.

"Opec+ tailors supply and demand to balance the market," says Kate Dourian, of the Energy Institute. "It keeps prices high by lowering supplies when the demand for oil slumps."

The organisation can also lower prices by putting more oil into the market.

Why is Opec+ cutting oil output?

Saudi Arabia's voluntary cut of one million barrels a day comes into effect in July.

It follows a cut of 1.16 million barrels a day in April, which was voluntarily undertaken by eight members of Opec+, and a group-wide cut of two million barrels a day in October 2022.

It is thought that Saudi Arabia, which is currently chairing Opec+, needs to have the price of Brent crude rising to $80 (£65) a barrel or more to cover its government spending and import bill.

In 2020, the price of crude oil crashed because of a lack of buyers, as countries went into lockdown. Opec+ had to boost prices by cutting production dramatically - by more than nine million barrels per day.

Following Russia's invasion of Ukraine, the price of Brent crude soared to more than $130 a barrel. However, by March 2023 it had fallen back to little above $70 a barrel - a 15-month low.

David Fyfe, of the oil industry research group Argus Media, says that the most recent production cut may force prices above the $80 a barrel mark, but says that they may not rise far beyond that because global demand for oil is weak.

"We are seeing a sharp slowdown in economic growth in developed countries, almost to the point of them going into recession," he says. "And we don't think the demand for oil in China will increase a great deal in the next few months. So the market will not be that tight in the second half of the year."

What's happening with Russian oil?

Getty Images Russia's President Vladimir Putin and Opec secretary general Mohammad Barkindo shaking hands.Getty Images
Russia's Vladimir Putin and Opec's secretary general Mohammad Barkindo

After Russia invaded Ukraine, EU countries stopped importing Russian oil transported by sea, and countries such as the US and UK stopped buying it altogether.

Russia is now exporting more crude to countries such as India and China, which are not imposing the Western sanctions against Moscow.

However, the G7 group of nations is trying to keep Russia's oil revenues low by imposing a price cap of $60 a barrel on the oil that it exports.

  • Can the world cope without Russian oil and gas?
  • Cheaper Russian oil is attracting new Asian markets
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