OPEC+ announces surprise cuts of Production: Implications for Ghana as prices on the international market are expected to surge
From May 2023 onward, consumers of fuel products in Ghana and other parts of the world are likely to pay more for fuel after OPEC+ producers announced they would cut production in a surprise move.
On Sunday, April 2, Saudi Arabia announced that it would start “a voluntary reduction” in its production of crude oil, alongside other members or allies of the Organization of the Petroleum Exporting Countries (OPEC).
The cuts will start in May and last through the end of the year, an official with the Saudi Ministry of Energy was quoted as saying by the Saudi state-run news agency SPA and reported by BBC.
In May, oil producers had agreed to slash output by 2 million barrels a day, the largest cut since the start of the pandemic and equivalent to about 2% of global oil demand.
Saudi Arabia now says it will cut oil production by another half a million barrels a day.
Meanwhile, Iraq will slash production by 200,000 barrels per day, and the United Arab Emirates will decrease output by 144,000 barrels per day.
Kuwait, Algeria, and Oman will also lower production by 128,000, 48,000, and 40,000 barrels per day, respectively.
The cuts – which amount to more than one million barrels per day – are being made by members of the Opec+ oil producers. The group accounts for about 40% of the world’s crude oil output.
Saudi Arabia, Iraq, and several Gulf states have described the move as a precautionary measure aimed at supporting the stability of the oil markets.
The latest reductions come on top of a cut announced by Opec+ in October 2022 of two million barrels per day (bpd).
Oil prices soared when Russia invaded Ukraine, but are now back at levels seen before the conflict began.
What are the implications for Ghana?
1. There will be rising prices of fuel products which in turn increases the prices of goods and services on all fronts in Ghana. Transport fares, and utility bills among others will surge as a result of the price rise of petroleum products which will bear the cut in production by OPEC+.
2. It will add pressure to an already hot-button issue for consumers in Ghana. Prices of petroleum products for the first three months have had fluctuated anomalies as various Oil Marketing Companies sell petrol and diesel at different prices to consumers.
3. Rising oil prices could mean inflation remains higher for longer in Ghana. Fuel price adjustment, one of the major drivers of inflation in Ghana could only drag inflation higher than it is now due to the cut of production by OPEC+.
4. Worsening cost of living could only get worse as it faces the brunt of fuel products increment. Fuel product adjustment affects every facet of the Ghanaian economy which can dwindle the standard of living of Ghanaians.
5. It will raise the risk of recession. Within a short period from 2021 to date, prices of goods and services in Ghana had increased exponentially leading to hyperinflation and currency devaluation affecting both macro and micro levels of the economy. The Bank of Ghana did not have the needed dollars to pay for the country’s commitments. The balance of payment had deteriorated, leading Ghana to insolvency. The cut which will automatically induce increments will put more pressure on the BoG to have more dollars so that oil importers can import the product to the country which will, in turn, affect the forex rate.