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Despite OPEC+, followed by its de facto leader Saudi Arabia, taking the decision to cut its oil supply, global oil prices have surprisingly experienced a downward trend. According to Saudi's narrative, during Biden's visit to the country in October 2022, he requested a delay in their decision on oil output. However, OPEC+, led by Saudi Arabia, disregarded the request and instead decided to reduce the rate of oil supply by 2 million barrels per day starting the following month. This decision sparked widespread apprehension and panic, as many anticipated that the tighter supply would drive up oil prices amid the current challenges of high inflation and the looming threat of a global recession. Surprisingly, the opposite occurred, and for the second consecutive week, oil prices witnessed a considerable decline.

The phenomenon of falling oil prices can be attributed to several factors, including the declining demand for oil due to OPEC's decision to reduce oil supply and the delayed rebound of China's economy. Additionally, a significant incident that had a crucial impact was the alleged rumor of a potential nuclear deal between the US and Iran, which raised the possibility of Iran returning its oil supply to the market. However, both countries swiftly denied the rumor, resulting in an increase in oil prices. Furthermore, the stock prices of oil companies in the US experienced an upward trend, exerting a notable influence on the overall oil price. On the other hand, despite facing multiple sanctions and being engaged in a war, Russia has resorted to bypass mechanisms to release a substantial amount of unpurified oil into the market to sustain its war-torn economy. It is evading the price by using "dark fleet" tankers that use tampering in location data and transfer oil across other states. This influx of supply has successfully met the demand for oil without causing a significant price increase. Taken together, these circumstances have cumulatively contributed to a 1% reduction in oil prices within just two consecutive weeks.

The frequent fluctuations in the market rate highlight the inherent instability of the oil market, as noted by UBS analyst Giovanni Staonovo. Saudi Arabia's attempt to exert control over the market by reducing oil supply was met with ongoing incidents that continuously altered the situation, ultimately causing Saudi Arabia to lose its dominance. This demonstrates that the market possesses the capability to resist the control of OPEC and Middle Eastern oil supply. According to the New York Times, Saudi Arabia made these defensive decisions in order to maintain a balanced budget and generate substantial oil revenue to fund the ambitious infrastructure projects led by Muhammad Bin Salman. However, it is evident that this plan has thus far failed, leading Saudi Arabia to become increasingly desperate to raise oil prices above $80 per barrel. In light of this desperation, Saudi Arabia has decided to decrease its oil supply to the global economy for the third consecutive time in the last six months.

However, an extreme decline in oil prices could potentially trigger a sharp rise in demand, leading to an eventual increase in prices. Additionally, such a decline indicates significant economic pressure, characterized by a decrease in demand. This scenario would also impact the refining industry, causing a decline in profit margins. These factors collectively have the potential to thrust economies into turmoil and push the inflation rate beyond acceptable levels. While the fall in oil prices may benefit consumers in terms of increased affordability, it is crucial to recognize the potential repercussions. Ultimately, it becomes essential for market leaders and corporations to reach a consensus and establish a price cap to maintain market stability and ensure sustainable demand.

Jubaida Auhana Faruque is an Executive Policy Assistant at the Centre for Governance Studies.