OPEC Cuts Oil Production
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OPEC Cuts Oil Production

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Perla Velasco By Perla Velasco | Journalist & Industry Analyst - Mon, 04/03/2023 - 16:48

The Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, announced a 500Mb/d cut in oil production for the rest of 2023, starting in May. The decision is expected to increase tensions between Saudi Arabia and the US, driving up inflation. The announcement was made before the organization’s reunion today, April 3, 2023.

The organization described the cut as a precautionary measure to support the stability of the oil market. Subsequently, Iraq, the United Arab Emirates and Kuwait announced cuts to their production. Just moments after OPEC’s announcement, Russia also announced a 500Mb/d cut in production.

Experts counted on the organization's decision to maintain the previous 2MMb/d cut, but OPEC took another direction. The US, which has resorted to a series of interest rate hikes to counter inflation, criticized the decision.

Mexico is among the players that granted large oil subsidies to counter the effects of high oil prices on inflation. As the Mexican peso remains strong, standing below MX$19 (US$1.05), oil income has had its toll on public finances. To make matters more complicated, PEMEX’s refining strategy has not paid good dividends and the start of operations of the Olmeca Refinery was postponed until June. This situation forecasts further fuel subsidies, which last year depleted the national arcs to a degree that even additional oil incomes could not cover.

Pressured by geopolitical tensions, the US laxed the sanctions imposed on Venezuela many years back. In December, US oil company Chevron signed a six-month contract with Venezuela.

As reported by Bloomberg, in Oct. 2022, OPEC+ reduced its production by approximately 2MMb/d just weeks before the US midterm elections. At the time, US President Joe Biden promised there would be consequences for Saudi Arabia. However, the administration did not take action and recently the White House has commended several Saudi initiatives, such as providing Ukraine with US$400 million in energy and financial aid.

Photo by:   Lara-sh

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