Green Is The New Black

OPEC kept production lower

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What's going on?

OPEC, a group of major oil-producing countries, agreed on Monday to maintain its limits on oil production until 2020.

What does this mean?

OPEC initially started cutting oil production back in 2017. Slippery stockpiles had built up around the world and it wanted to protect prices; too much supply would push them down. But in the current climate (economic and otherwise), demand for the black gold is also declining: with less economic growth comes less need for oil to make and transport stuff. Plus, the US is pumping out petroleum like nobody’s business – it’s now the world’s biggest producer. What with Saudi Arabia also diversifying into the gas game, energetic competition has been putting downward pressure on oil’s price in recent months.

OPEC’s agreement will keep production lower until at least March next year. Its members now know roughly what income to expect from their fossil fuel flogging (although oil’s price can quickly change) and can plan their national spending accordingly.

Why should I care?

For markets: Oil has snaked on up.

Although it’s fallen 10% since April, the price of a barrel of oil has still risen by a quarter this year – after a long slide in 2018. US sanctions on Venezuela and Iran – the world’s sixth-largest oil producer – have dammed oil supply somewhat, along with conflict in Libya. A higher oil price makes things more expensive for companies that rely on oil or oil-based fuel, and those increased costs are driving up consumer prices too (tweet this).

The bigger picture: No olive oil branches?

OPEC, like any good marriage, is supposed to make decisions as a team. But Iran is worried that unilateral decision-making by Saudi Arabia and non-member Russia – set to mirror OPEC’s move on Tuesday – could derail the whole group. OPEC currently controls 44% of the world’s oil supply and 81% of proven reserves, but its waning influence could lead to wilder swings in oil’s future price. Another reason to go green?

Originally posted as part of the Finimize daily email.

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