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The Organization for Petroleum Exporting Countries (OPEC) announced that it has agreed to reduce daily crude oil production by 1,200,000 barrels per day. While it had been widely speculated that OPEC would soon reduce oil production, the concensus was a reduction of 1,000,000 barrels per day.
Before the announced cuts, crude oil production had been at roughly 29.5 million barrels per day, so this 1.2 million barrel per day cut represents less than 5% of the current production levels.
As if the 20% surprise in production cuts wasn’t enough, OPEC also stated that it is open to further reductions if the price of oil doesn’t settle soon. According to analysts, OPEC has determined the fair market value for a barrel of crude oil is between $57 and $60 per barrel, and they are willing to implement further cuts to sustain that price range.
Today’s announced cuts have come about due to a dramatic and rapid decrease in the price of oil. Since hitting its all-time high of $78.40 per barrel on July 14, the price of crude oil has fallen over 25%. The price of oil finished the day trading at $58.50.
