Summary
- OPEC+ to lower output by 2 mln bpd
- Real cuts estimated at 1 mln bpd owing to under-production
- Biden condemns decision, calls it shortsighted
- Saudi says West’s criticism motivated by wealth arrogance
- Saudi says cuts necessary due to increasing interest rates
OPEC+ agreed on deep oil production cuts on Wednesday, choking supply in an already tight market, prompting one of its biggest clashes with the West as the U.S. administration labeled the surprise decision shortsighted.
OPEC’s de-facto leader Saudi Arabia said the cut of 2 million barrels per day (bpd) of output – equivalent to 2% of global supply – was required to respond to hiking interest rates in the West and a slower global economy.
The kingdom rejected criticism it was collaborating with Russia, which is included in the OPEC+ group, to push prices higher and said the West was often motivated by “wealth arrogance” when condemning the group.
The White House said President Joe Biden would continue to evaluate whether to provide further strategic oil stocks to reduce prices. In that context, the White House said:
“The President is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of (Russian President Vladimir) Putin’s invasion of Ukraine.”
Biden is faced with low approval ratings ahead of mid-term elections due to surging inflation and has requested Saudi Arabia, a long-term U.S. ally, to help reduce prices.
U.S. officials have said part of the reason Washington wants to reduce oil prices is to strip Moscow of oil revenue. Biden visited Riyadh this year but was unable to obtain any firm cooperation commitments on energy. Relations have been further weakened as Saudi Arabia has not denounced Moscow’s actions in Ukraine.
The cut in oil supplies agreed upon in Vienna on Wednesday could prompt a rebound in oil prices that have fallen to about $90 from $120 three months ago on fears of a global economic recession, a stronger dollar, and increasing U.S. interest rates.
Saudi Energy Minister Abdulaziz bin Salman said OPEC+ had needed to be pro-active as central banks globally moved to “belatedly” combat surging inflation with rising interest rates.
Buy Crypto NowLower Real Cuts By OPEC+
Wednesday’s production cuts of 2 million bpd are established on current baseline figures, which implies the cuts would be less steep because OPEC+ failed to reach about 3.6 million barrels per day of its output target in August.
Under-production occurred because of Western sanctions on countries such as Russia, Iran, and Venezuela and output problems with producers such as Angola and Nigeria. Prince Abdulaziz said the actual cuts would be 1.0-1.1 million bpd.
Analysts from Jefferies said they put the figure at 0.9 million bpd, while Goldman Sachs estimated it at 0.4-0.6 million bpd saying cuts would largely come from Gulf OPEC producers such as Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait.
Benchmark Brent crude jumped above $93 per barrel on Wednesday.
The West has blamed Russia for weaponizing energy, with climbing gas prices and a struggle to find alternatives triggering a crisis in Europe that could lead to gas and power rationing this winter.
Moscow, meanwhile, blames the West for weaponizing the dollar and financial systems such as the international payments mechanism SWIFT in response to Russia’s invasion of Ukraine in February. Russian Deputy Prime Minister Alexander Novak, who was added to the U.S. special designated national’s sanctions list a week ago, also made a trip to Vienna to take part in meetings.
Novak is not under EU sanctions. He and other members of OPEC+ decided to extend the cooperation deal with OPEC by another year to the end of next year. The next OPEC+ meeting will happen on December 4. OPEC+ will move to convene every six months rather than monthly meetings.
