Ministers confirmed that they would cut production by 2m barrels a day, an amount equivalent to 2% of the world’s total output
of the Petroleum Exporting Countries is sometimes called the oil market’s central bank. Every month the cartel and its allies, some 23 countries that produce 40% of the world’s oil, meet to decide on production targets. The aim is to keep prices high and stable. But just as central-bank governors argue about the speed of rate rises, members ofThe latest summit on October 5th was a short one—but the decision that emerged was controversial.
Members are worried about falling demand. Brent crude, the global benchmark, has dropped to $93 a barrel, down from $125 in June. Pricey petrol has led to lower consumption. Europe’s gas crunch, China’s covid policies and property troubles, and rising interest rates augur a global recession. The strong dollar, in which oil prices are denominated, makes the fuel still less affordable outside America.
The cartel has rarely had such an opportunity to set prices. No country outside of its biggest members has the capacity to ramp up output fast, and global stocks are low. Crude inventories in the, a club of mostly rich countries, remain well below their five-year average; China is running down its stockpiles in a bid to satiate its thirsty refiners.
The decision may also reignite diplomatic tensions within the cartel. Since quotas no longer reflect actual output, the latest cuts are being shouldered by just a handful of members—Iraq, Kuwait, Saudi Arabia and the, which secured a small increase in July but plans to expand its production capacity from 4m b/d today to 5m b/d in 2025, will almost certainly agitate for a rejig in future negotiations.
Ironically, Russia could offer the cartel a solution. The country has long been a staunch advocate for higher production. But its output is now likely to fall, both soon, as a result of a European embargo set to start in December, and in the long run, as sanctions prevent it from getting access to vital partners, people and parts. Saudi Arabia and theare in bed with “a weakening business partner”, says Karen Young of Columbia University. Russia will be reluctant to give away some of its quota.
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