OPEC Announces it Will Go Ahead with Production Increase

What Happened?

The Organization of Petroleum Exporting Countries (OPEC) announced it will begin gradually increasing oil production in April. 

A spokesman for the group said OPEC would raise production by 2.2 million barrels a day, which equates to approximately two percent of global demand. The increase will begin in April and continue gradually over several months. 

Saudi Arabia, Russia, Iraq, Kuwait, the United Arab Emirates, Algeria, Kazakhstan, and Oman have all agreed to begin reducing their self-imposed production cuts in April 2025. The process will continue for eighteen months after that. 

The increase in oil production will be the first since 2022.

Why it Matters

Oil prices in the United States were down two percent on the heels of the OPEC announcement, with prices resting at $68.37 per barrel as of Monday. The potential implications of an OPEC increase in production include putting production of oil above demand, which could cause prices to drop. 

Why is OPEC going ahead with the scheduled production increase?

According to Amapreet Singh of Barclays, the decision to move ahead with the production increase isn’t due to market demand but “rather in response to increasing political pressure, especially from the Trump Administration.” 

During the 2024 presidential election campaign Mr. Trump promised to reduce oil prices by fifty percent during his term in office. “You’ve got to bring it down, which, frankly, I’m surprised they didn’t do before the election,” Mr. Trump said to the World Economic Forum.

OPEC added in a subsequent statement that members of the oil cartel will adjust their plans as necessary to meet changing marketplace conditions. The statement noted, “This flexibility will allow the group to continue to support oil market stability.”

An increase in production could help consumers by lowering their energy costs. 

But too much of a decrease in oil prices can have a negative impact on oil producing countries and states. Below a certain price point some wells are no longer profitable. 

although there is variation depending on particular locations and operations, energy analysts generally agree that if oil drops below sixty dollars a barrel many wells stop being profitable to operate.

Global oil prices may have also been affected by the potential for a peace deal between Russia and Ukraine. So far, negotiations have not yielded concrete agreements for ending the war.

How it Affects You

With the approach of summer in the United States, travel tends to increase because many people take vacations or engage in various forms of leisure travel. 

On the whole travel is back to pre-pandemic levels, and a decrease in energy costs would be good news for consumers as they head out for summer vacations.