OPEC (Plus) has made a surprise announcement that it will be cutting oil production.
This is certainly a f$#@-you to the United States and the West, and one could argue that this is an attempt to take Russia's side in the Ukraine war, at least a bit.
In any case, with a Presidential election about 18 months away, it is highly likely that it can have a profound effect on both the economy and the elections:
Saudi Arabia, Russia and their oil-producing allies announced on Sunday that they would cut production by more than 1.2 million barrels of crude a day, or more than 1 percent of world supplies, in an apparent effort to increase prices.
Oil prices soared as markets opened Sunday evening, with both the American and global oil benchmark prices rising by 7 percent.
The production cut was unexpected because leaders of the group, known collectively as OPEC Plus, said in recent days that they did not intend to make changes in their policies. While the announcement was a surprise, its significance may ultimately be slight, especially if the global economy slows.
It's likely that the cuts, and the resulting price increases, will slow the global economy in any case.
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Still, the OPEC Plus action has symbolic importance at a time when oil prices are a third below where they were immediately after Russia’s invasion of Ukraine last February. OPEC Plus members may be responding to growing fears of a recession later this year in the wake of the failure of several American and European banks as well as central bankers’ continued efforts to tame inflation. Oil demand has also been undercut by strikes in France, including at refineries.
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Saudi Arabia and Russia will lead in making the announced cuts, with declines of 500,000 barrels each, followed by Iraq, United Arab Emirates and Kuwait. Some analysts said the move could spur more investor speculative interest in oil futures and help drive oil prices higher in coming weeks.
I don't think that market fundamentals drove this decision. I think that it was foreign relations considerations.
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