OPEC+ Production Cuts Lead to Soaring Oil Prices and Economic Uncertainty

Following the Organization of the Petroleum Exporting Countries (OPEC) and its allies’ 1.66 million barrels per day (bpd) crude oil production cut on Sunday, global oil prices have remained on a bullish run.

Brent crude oil, against which Nigerian oil is priced, rose by 0.5% to $85.36 a barrel while the U.S. West Texas Intermediate (WTI) crude oil at $80.89 a barrel, up 0.6%.

The latest cuts come after OPEC+ implemented a 2 million barrel cut last October, bringing the total volume of cuts to 3.66 million bpd, equivalent to around 3.7% of global demand.

Analysts are predicting that these cuts could lead to oil prices reaching $100 per barrel by the end of the year, a level that has not been seen since 2014.

However, the motivation behind these cuts at a period when demand in China and other few countries have started picking up remains unclear.

Trying to explain the why, Callum Macpherson, head of commodities at Investec, said, “It may be due to concerns about the spill over of equity recent market volatility into oil prices or because members perceive a weakness in the physical market that is not apparent to the wider market.”

Meanwhile, the soaring oil prices are raising fears of inflation and resulting in concerns about rate hikes. Market watchers are attempting to gauge how much longer the U.S. Federal Reserve may need to keep raising interest rates to cool inflation, and whether the U.S. economy may be headed for recession.

Overall, the OPEC+ production cuts have led to a significant shift in the oil markets, with the potential for long-term economic impacts that are yet to be fully understood. Investors will be closely monitoring oil prices and global economic trends as the situation continues to develop.