OPEC+ agreed Wednesday to cut production by 2 million barrels per day (bpd), the largest reduction since April 2020, as the cartel aims to keep oil prices high amid low global inventories.
The Organization of the Petroleum Exporting Countries and its key allies including Russia, known as OPEC+, decided to make the production cut Wednesday while the White House was looking to stop reductions, according to Bloomberg. U.S. officials were reportedly lobbying Gulf allies to push back on any big production reductions in the days and hours ahead of Wednesday's meeting in Vienna.
Draft talking points from the White House included mentioning that a production cut would be a "total disaster" and warned it could be received as a "hostile act," according to CNN.
A month ago, OPEC+ made a mostly symbolic production decrease of 100,000 barrels per day, starting in October. That came after its members earlier agreed to up quotas by 100,000 barrels for September. However, all signs point to a more substantial reduction this time around.
Still, several OPEC+ member nations have already been struggling to reach existing quotas. The oil cartel is underproducing by around 3 million bpd.
Speaking at the Energy Intelligence Forum in London Tuesday, Saudi Aramco CEO Amin Nasser said global oil inventories are already "extremely low."
The November OPEC+ production cut coincides with the planned end of the Biden administration's release from the Strategic Petroleum Reserve.
OPEC+ Cuts: Oil Prices And Gas
U.S. crude oil prices were up 1.5% to 87.84 a barrel Wednesday morning after jumping 3% Tuesday. This comes after oil gained around 5% Monday. Crude oil futures recorded their fourth consecutive monthly decline in September. Oil prices skyrocketed earlier this year, briefly hitting $130 per barrel in March after Russia invaded Ukraine.
But crude oil prices have fallen more than 30% as interest rates continue to rise amid fears of a global economic slowdown and weaker energy demand. This has led OPEC to look for a way to increase oil prices once again.
Shares of energy giants ExxonMobil and Chevron were up during Wednesday's market trading. XOM surged 4% to 98.98. CVX edged up 0.4% Wednesday after increasing 3.9% to 157.58 Tuesday.
Meanwhile, as crude oil prices increased, U.S. natural gas futures traded down around 4% Monday to the lowest level since July. Natural gas prices increased 1.6% Wednesday morning after jumping 5.4% Tuesday.
Danish authorities also announced over the weekend that the ruptured Nord Stream 2 natural gas pipelines in the Baltic Sea appear to have stopped leaking.
Western nations and Russia have accused the other of sabotaging the Russia-owned pipelines.
Leading liquefied natural gas exporter Cheniere Energy is looking to add shipping capacity to its Louisiana export terminal. If completed, Cheniere's export plant would be the first in the U.S. with three docks ready to ship LNG to Europe, Bloomberg reported.
Cheniere Energy was down 2.5% before gaining 0.5% Wednesday to 171.20. The LNG stock has held up well during the uncertain market environment. LNG shares have gained more than 40% since mid-July.
U.S. Oil Output Recovering
U.S. output rose about 0.1% to 11.8 million bpd in July, according to the Energy Information Administration (EIA). That's the highest level since April 2020, but still about 10% off the U.S. record of 13 million barrels set in November 2019.
Meanwhile, the number of active oil rigs in the U.S. has also been on an upward trend. In the last week of September, there were 765 active oil rigs in the U.S., an increase of one from the previous week, according to Baker Hughes. BKR releases weekly oil rig counts every Friday. In early June, there were 727 active U.S. oil rigs, a 60% increase from last year's depressed activity.
U.S. crude oil production should run around 11.8 million barrels per day for all of 2022, an average increase around 700,000 barrels a day compared to 2021, according to the EIA. EIA forecasts also suggest output in 2023 will rise to more than 12.6 million barrels per day. If this prediction holds, it would surpass the annual average record of 12.3 million barrels per day set in 2019.
Strategic Petroleum Reserve Releases
The Biden administration has also released 160 million barrels of crude from the Strategic Petroleum Reserve (SPR) since March, in an attempt to bring down gasoline prices and stabilize oil prices.
Phil Flynn, senior analyst at the Price Futures Group, wrote Monday that with the petroleum reserve releases ending in November and with a likely OPEC+ quota cut, there will be a "huge supply deficit as we head into winter."
"If President Biden does not continue the SPR releases that means we're going to see a 2 million barrel a day deficit run the global marketplace," Flynn said. "That means that the price of oil more than likely will head back above $100 a barrel."
The price of gasoline at the pump is already beginning to increase on average once again. After declining for 98 consecutive days, the national average reversed course on Sept. 21, according to AAA.
On Wednesday, gasoline prices averaged $3.83 nationally. On Sept. 21, prices increased by a penny to $3.68, breaking the decline. Retail gasoline prices have spiked in California and along the West Coast.
Refining production, straining to meet demand all year, is taking a short-term hit with several refineries down, many in California.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
