What's going on?

On Thursday, the group of fourteen oil-exporting nations known as OPEC agreed to extend caps on oil production until the end of next year, helping to underpin a recent rise in the oil price (tweet this).

What does this mean?

Around a year ago, OPEC finalized a plan (alongside other non-OPEC states like Russia, a major producer) that limited overall oil production in the hope of raising the oil price. Back then, OPEC said that there was an oversupply of oil in global markets; with production limited, energy consumers would eventually eat through the existing glut and start to demand more oil, causing the price to rise.

Even though the oil price has steadily risen through the second half of this year, OPEC says there�s still an oversupply. It�s therefore resolved (with its non-OPEC partners) to keep the production caps through 2018 � while leaving a backdoor open to review and possibly scrap them in June.

Why should I care?

The bigger picture: There�s a big counterweight that could snarl up OPEC�s plans�

Even though OPEC deals have been wrecked in the past by cheating participants producing more than they had promised to, the caps imposed a year ago have mostly gone to plan. However, the big elephant in the room remains the US shale oil producers � as the oil price goes up (as it has recently in anticipation of today�s deal) the Americans are incentivized to produce more oil, thus putting downwards pressure on its price.

For you personally: Higher energy prices show up all across the economy.

Obviously, you�ll see them at the pump if you�re filling up your vehicle; but they also show up at the grocery store (how do you think all that fresh food got there?) and when you�re booking a vacation. A higher oil price benefits some companies and regions (most obviously Texas, the Middle East and other oil-producing areas) � but it also acts as a tax on the rest of us.