OPEC+ cuts oil production causing prices to spike by more than 5%

The Organisation of the Petroleum Exporting Countries (OPEC) and a number of other countries which voluntarily participate in the organisation’s initiatives, known as OPEC+, have decided slash the output of oil by around 1.16 million barrels per day, according to Reuters.

The decision triggered the price of Brent crude oil to increase by more than five per cent, rising above $84 (€77.44).

OPEC is an intergovernmental organisation which coordinates oil policies. The organisation has 14 official members which account for 44 per cent of global oil production and more than 80 per cent of proven oil reserves. The number increases further when taking into account OPEC+ members.

Despite the spike, oil prices are still below what they were when the Russian invasion of Ukraine began. While Malta’s energy supply is not so dependent on oil, with less than two per cent of the fuel mix being composed of petroleum products, Malta still imports a substantial amount of petroleum products for other purposes.

However, electricity and fuel prices have been frozen in Malta since the COVID-19 pandemic and has dedicated upward of €600 million to subsidising them in 2023.

In a policy note published by the Central Bank of Malta in December 2022, it mentioned how higher oil prices are disruptive to overall price stability since both shipping and energy have a direct impact on the Maltese economy.

It explained that inflation could have been twice as bad were it not for the price cap.

Despite the benefits of the freeze on energy and fuel prices, the subsidy is inevitably a drag on taxpayer funds, with over 10 per cent of expenditure dedicated for the purpose.

Thus far there is no indication whether prices will remain frozen in 2024 or whether an alternative solution will be put forward. Recently the IMF encouraged the Government of Malta to prepare an exit-strategy since high energy costs are expected to persist for a prolonged period of time.