The logo of the Organization of the Petroleum Exporting Countries (OPEC) is pictured at its headquarters in Vienna. Photograph: (Reuters)
The decision that has been long pending led to a six per cent increase in crude oil prices
Members of the Organisation of Petroleum Exporting Countries (OPEC) have finally decided to cut down their oil production after eight long years of large scale production.
The decision has, however, shocked analysts and market watchers given that it included two rival nations - Saudi Arabia and Iran.
The last few years have seen a global slump in oil prices owing to an increase in the supply of crude oil. The increased supply was not matched by an equally increased demand resulting in an oil glut across the world.
The 2008 financial crisis had a severe impact on the global demand for oil, reducing the energy demand across industries and nations.
Ships carrying crude oil were reported to be stranded at sea for days due to the lack of enough demand.
After OPEC’s decision to cut oil production, crude oil prices marked an increase of six per cent.
Recently, non-OPEC member Kazakhstan announced that it is opening its Kashagan oil field at the North Caspian sea.
It is one of the largest oil discoveries in the past 40 years but the project has been stalled since 2013. The government of Kazakhstan has made an investment of around USD 50 billion in the project.
Kazakhstan has also announced the expansion of its Tengiz oil field simultaneously. This decision too would increase global oil supply and disturb the crude oil market.
The central Asian country has been experiencing high current account deficit for the last couple of years and the export of oil can help it better the deficit.
Countries like Venezuela face a serious threat with such announcements as oil is their most crucial source of income for this South American nation. During the boom period, Venezuela had focused so much on oil that when the fall in prices had a severe impact on its economy.