Local economist weighs in on OPEC production cuts
SOUTH BEND, Ind. (WNDU) - On Tuesday, the Organization of the Petroleum Exporting Countries announced that they would decrease crude oil production by 2 million barrels per day.
OPEC hopes to shore up fading gas prices which have fallen to $80 per barrel from a high of $120 only three months ago.
This announcement disturbed world markets, but President Biden has suggested several countermeasures to reduce the potential impact.
Biden has directed the Department of Energy to release another 10 million barrels of oil from the Strategic Petroleum Reserves to moderate any price shock at the pump. Still, relief from the reserves will not be long-term, as 10 million barrels will only offset five days of OPEC’s production cuts.
The United States is considering lifting sanctions on Venezuela to incentivize Chevron to make more oil available nationwide.
“We’ve had restrictions on the ability of the Venezuelan producers, mainly Chevron, to be able to sell oil into the United States, so they’re just selling their oil elsewhere,” said Tom Gresik, Professor of Economics at the University of Notre Dame. “If we get some of that oil into the United States, that could ease some of the production restraints.”
These supply cuts will drop OPEC’s daily production from 30 to 28 million barrels.
“Oil has always been one of those products where the prices fluctuate a lot because economic conditions change a lot in terms of both supply and demand,” said Prof. Gresik. “We have big seasonal effects, and then we have these big supply disruptions. The supply disruptions we saw in regard to Russia, the supply reductions that we’re going to see with regard to OPEC, all of those things have an effect. 2 million barrels a day is a non-trivial amount of oil, and if those reductions aren’t offset with demand reductions, we’re going to see higher prices.”
OPEC’s production cuts will take effect this November.
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