Why are the world’s biggest oil producers cutting supplies?

Saudi Arabia, Iraq and several Gulf states are together cutting supplies by one million barrels of oil a day and Russia, their fellow member in the Opec+ group, is extending its cut of half a million barrels per day until the end of the year.

The move has been criticised by the White House.

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 (the Organization of the Oil Exporting Countries), which are mainly Middle Eastern and African countries. Opec was formed in 1960 as a cartel, with the aim of fixing the worldwide supply of oil and its price.

Today, Opec nations produce around 30% of the world’s crude oil. Saudi Arabia is the biggest single oil producer within Opec, 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+.

Those new members included Russia, which also produces over 10 million barrels a day.

Together, these nations 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. “They keep prices high by lowering supplies when the demand for oil slumps.”

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

Why is Opec+ cutting oil output?

The most recent cut, of 1.16 million barrels a day, follows a cut of two million barrels a day in October 2022.

It immediately led to a 5% rise in the oil price on international exchanges.

“It came as a complete surprise,” says Ms Dourian, “because Saudi Arabia had said recently that its production quotas would remain in place for the rest of the year.

“It may be a pre-emptive move by Opec+, because it feels world demand for oil won’t be as robust as was previously forecast.”

In 2020, the group cut production by more than nine million barrels per day in response to the pandemic. As countries went into lockdown, the price of crude oil crashed because of a lack of buyers.

Following Russia’s invasion of Ukraine, prices soared to over $130 a barrel but by March this year, they had fallen to 15-month lows, down to little above $70 a barrel.

Rising oil prices will probably push up petrol prices again in the UK and around the world, adding to cost-of-living pressures.

The US has called the latest move by Opec+ “inadvisable”.

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

Russia is now exporting more crude to India and China, which did not join the Western sanctions against Moscow.

However, the G7 group of nations are keeping Russia’s oil revenues low by imposing a price cap of $60 a barrel on oil that it exports.