The West Continues To Cede Power To OPEC, Making Price Changes More Extreme

The West Continues To Cede Power To OPEC, Making Price Changes More Extreme

Share to Linkedin This previous weekend the Organization of Petroleum Exporting Countries (OPEC) announced further production cuts of a little over 1. 1 million barrels per day from May onward. As can be expected, the U. S. was not too happy. The U. S. is in the middle of battling inflation and continues to raise interest rates to do so. These rate increases come at a cost, with recent casualties including Silicon Valley Bank. The prospect that a lot of the work on inflation could be negated as outside actors look to raise oil prices has them rightfully upset. The problem is that external actors will have more and more control over oil prices with the continued constraint of domestic supply. Oil prices jumped over 5% on Monday after the announcement. How a 1% reduction in supply can create a fivefold increase in price is always surprising from the outside and shows the lucrative math behind cuts. The core cause is that price is set by the marginal barrel, referring to the additional barrel of oil that would need to be produced to meet demand beyond existing supply. It is the most expensive barrel to produce because it requires less