The Organization of the Petroleum Exporting Countries (Opec) in a meeting on Monday, July 1, extended the oil production cuts for another nine months in hopes to trigger an upward movement in oil prices and avoid oversupply.
“The commitment to a nine-month extension is unequivocal, very solid, very strong,” Saudi Arabia’s Energy Minister Khalid Al-Falih was quoted as saying in a BusinessMirror report.
He added that he expects other producing countries such as Russia to support the extension cut.
Russian President Vladimir Putin said he backs Opec’s decision.
Around 1.2 billion barrels per day will be reduced from the production. 800,000 barrels per day of the reduction will be coming from members of Opec, while the rest will be coming from Russia and other nonmember countries, except the United States.
“This more than compensates for whatever demand concerns that investors have been experiencing in recent months,” Raymond James energy analyst Pavel Molchanov said in the same report.
Global demand could plummet by 200,000 to 300,000 barrels per day however the Opec cuts will decrease supply by about 1 million barrels per day, which could result in an increase over the next few months, Molchanov noted.
However, Opec’s decision could not be the only one that would have a huge impact on oil prices, he said.
Other variables that could cause a movement in oil prices are geopolitical turmoil and production problems in different markets. Tensions between the Middle East and the US have been rising after the US imposed new sanctions on Iran.
One of the world’s largest oil producers Venezuela has also collapsed, which could also affect the movement of prices.
The US-Iran conflict would further drive oil prices higher, according to experts.