© Indian Punchline
The shock oil production cuts from May
outlined by the OPEC+ on Sunday essentially means that
eight key OPEC countries decided to join hands with Russia to reduce oil production, messaging that OPEC and OPEC+ are now back in control of the oil market.
No single oil producing country is acting as the Pied Piper here.
The great beauty about it is that Saudi Arabia and seven other major OPEC countries have unexpectedly decided to support Russia's efforts and unilaterally reduce production.While the 8 OPEC countries are talking about a reduction of one million b/d from May to the end of the year, Russia will extend for the same period its voluntary adjustment that already started in March, by 500,000 barrels.
Now, add to this the production adjustments already decided by the OPEC+ previously, and the total additional voluntary production adjustments touch a whopping 1.6 million b/d.
What has led to this? Fundamentally, as many analysts had forewarned, the
Western sanctions against Russian oil created distortions and anomalies in the oil market and upset the delicate ecosystem of supply and demand, which were compounded by the incredibly risky decision by the G7, at the behest of the US Treasury, to impose a price cap on Russia's oil sales abroad.
On top of it, the Biden administration's provocative moves to release oil regularly from the US Strategic Petroleum Reserve in attempts to micromanage the oil prices and keep them abnormally low in the interests of the American consumer as well as to keep the inflationary pressures under check turned out to be an affront to the oil-producing countries whose economies critically depend on income from oil exports.
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