OPEC announces steepest cut to oil production since COVID-19 pandemic

OPEC+ countries decided to cut oil production by 2 million barrels per day, marking the deepest production cut since the start of the pandemic. An agreement reached between OPEC+ members could lead to an increase in gasoline prices ahead of the U.S. election.

The oil production cut is equivalent to about 2% of global oil demand.

The price of Brent crude oil rose 1.5% to more than $93 a barrel amid this decision. This week, oil prices had already inched higher ahead of the OPEC+ meeting. The price of U.S. oil rose 1.7% to $88. 

The Biden administration criticized the OPEC+ decision, calling it shortsighted. The representatives also noted that it would do more harm to low and middle-income countries that are already coping with higher energy prices.

OPEC members agreed to impose deep output cuts in November. In December, Organization of the Petroleum Exporting Countries (OPEC) and its allies will meet again.

The decision of OPEC countries was influenced by uncertainty about the global economy and the oil market. 

OPEC+ countries that together control nearly 40 percent of the world's oil supply are looking forward to preventing a drop in oil demand, which may be fueled by an economic slowdown in China, the U.S., and Europe. 

Rising oil prices could signal that inflation will be high for longer. It will intensify pressure on the Fed, forcing it to become more aggressive in raising interest rates.

Although the production cut was a bullish signal for oil prices, the agreement may have limited impact on the economy as it was difficult for many smaller OPEC producers to meet previous targets.

According to Rystad Energy analyst Jorge Leon, only some OPEC producers will cut oil production as it already lags 3 million barrels per day behind its stated production ceiling.

Rystad Energy expects the global oil market to be oversupplied by the end of the year, which will weaken the effect of the decision on prices.