OPEC Plans Collective Production Cut: Impact and Market Reactions, 2 DEC

 OPEC Plans Collective Production Cut: Impact and Market Reactions

In a significant development in the global oil market, the Organization of the Petroleum Exporting Countries (OPEC) has reportedly planned a collective production cut. The move, which includes an extension of current policy cuts and a Saudi-led reduction of 1 million barrels per day (mbpd), demonstrates a strong sense of unity among OPEC members, despite minor deviations from agreed quotas.

OPEC’s Planned Production Cut

The comprehensive reduction involves an apparent agreement on a Saudi-led cut of 1 mbpd, along with indications of a further cut of 1 mbpd for the entirety of the first quarter. The OPEC+ producers, including Saudi Arabia and Russia, are set to remove around 2.2 mbpd of oil from the global market in the first quarter of the next year. This total includes a rollover of the current voluntary cuts by these countries, amounting to 1.3 mbpd.

Market Reaction

In reaction to these developments, the bond markets are experiencing a sell-off. Gold prices have seen a decrease and the US dollar has gained strength. The market is reacting with an inflationary impulse, even though the price of oil has only increased by $1. This reaction, however, is relatively small compared to recent market movements.

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Saudi Arabia, one of the biggest oil producers, is leading these voluntary cuts by continuing its 1 million barrels per day reduction. Other members like Iraq, UAE, Kuwait, Kazakhstan, and Algeria have also decided to cut their oil supply, with Russia continuing its 500,000 barrels a day cut. This collective reduction by OPEC signifies a significant attempt to stabilize the volatile oil market and maintain oil price stability.

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