Analysts: OPEC+'s oil production cuts will drive up fuel prices

Gasoline station.
Gasoline station. Source: Ken Mürk/ERR

Estonian analysts believe Wednesday's decision by the Organization of the Petroleum Exporting Countries (OPEC+) to cut oil production will have a significant effect on future fuel prices.

OPEC agreed to reduce its output by two million barrels this week, which experts have said is the biggest cut since the coronavirus pandemic.

Prices will soon reach gas stations, Wednesday's "Aktuaalne kaamera" (AK) reported.

"This is a big risk. In fact, there is a risk of a slowdown in the global economy and a fall in demand, which is expected to be $100 a barrel. The assumption is that if oil prices go up, motor fuel prices will go up. But by how much, and to what extent, is still difficult to predict," said Estonian Oil Association manager Mart Raamat.

LHV analyst Kristo Aab told AK that OPEC+ has said economic reasons were behind the decisions as gas prices have fallen by up to 30 percent over recent months. But the sector wants to encourage future investment.

"It was decided to limit production a little and thus put upward pressure on prices," he said. 

Inevitably, global politics also played a role.

"As Russia is among the members of OPEC+, then there is certainly some kind of political element in this decision, especially considering, that directly before this meeting, both the USA and the European Union came up with a new sanctions package or a new idea about how to impose a price ceiling on Russian oil," Aab said. 

Rising fuel prices are one of the biggest reasons behind record-high inflation.

This summer, U.S. President Joe Biden visited Saudi Arabia and asked the country to increase its production volumes. This would have lowered gasoline prices and also reduced Russia's influence in the world.

"This is a bit of a bolt from the blue for the Biden administration, that such a decision has been taken, and actually the Americans have already reacted to it, saying that they will use their own strategic reserves in the future as needed," Aab said.

White House spokesperson Karin Jean-Pierre said on Wednesday: "It's clear that OPEC+ is aligning with Russia with today's announcement."

U.S. politicians have suggested removing their troops from Saudia Arabia in retaliation.

Tom Malinowski, a New Jersey Democratic congressman introduced legislation that would withdraw US troops from Saudi Arabia and the United Arab Emirates.

"If you want to side with [President Vladimir] Putin, then ask Putin to defend you. And good luck with that," Malinowski wrote on Twitter.

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Editor: Helen Wright

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