OPEC+ has announced deep cuts to its daily crude oil output during its meeting in Vienna today, curbing supply in an already tight market despite pressure from the US and others to pump more. The group has decided to cut 2 million barrels per day — its biggest output cut since 2020 — as it seeks to slow down sliding oil prices.
However, the decision will have a smaller impact on global supply than the headline number suggests, Bloomberg noted. Several member countries are already pumping well below their quotas, which means they would already be in compliance with their new limits without having to reduce production.
The decision of the largest oil-producing countries, including Russia, comes at a time when much of the world is already battling soaring energy costs.
Global recession concerns, a strengthening US dollar and surging inflation had been weighing on all markets, sending crude prices below $90 a barrel and leading to stronger calls from within the OPEC+ group for production to be reined in more aggressively.
OPEC decision a clear clash with US
The Biden administration has exerted furious efforts to convince OPEC producers against curbing output. Analysts said the output cuts – which could cause US gasoline prices to rise dramatically – could be very risky for the Biden administration, just five weeks before the midterm elections.
US Senator Chris Murphy called OPEC+’s plans to cut oil production a “mistake,” adding that there needs to be a re-evaluation of the alliance between the group’s de-facto leader Saudi Arabia and the United States.
In a last-minute effort to persuade OPEC against cutting production dramatically, the Biden administration yesterday launched a pressure campaign, CNN reported, citing multiple sources familiar with the matter.
“I think it is a mistake on their part. And I think it’s time for a wholesale re-revaluation of the U.S. alliance with Saudi Arabia,” Murphy told CNBC on Tuesday.
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In a statement to CNN, National Security Council spokesperson Adrienne Watson said, “We’ve been clear that energy supply should meet demand to support economic growth and lower prices for consumers around the world and we will continue to talk with our partners about that.”
“Higher oil prices, if driven by sizable production cuts, would likely irritate the Biden Administration ahead of US mid-term elections,” Reuters reported Citi analysts as saying.
“There could be further political reactions from the US, including additional releases of strategic stocks along with some wildcards including further fostering of a NOPEC bill,” Citi said, referring to a US anti-trust bill against OPEC.
OPEC’s decision comes less than three months after President Joe Biden traveled to Saudi Arabia and met with Crown Prince Mohammed bin Salman on a trip that was driven in part by a desire to convince Saudi Arabia, the de facto leader of OPEC, to increase oil production which would help bring down the then-skyrocketing gas prices.
Prior to OPEC’s meeting today, there was little sign that the US pressure was working. UAE’s Energy Minister Suhail Al Mazrouei noted the decision was “technical.”
“It’s very important that it remains as a technical decision and it’s not political,” he told reporters. “That’s why it’s important to look at technical side of the equation and look at any concerns regarding the economy and the status of the economy.”