The OPEC+ alliance of oil-exporting countries on Wednesday decided to sharply cut production to support sagging oil prices, a move that could deal the struggling global economy another blow and raise politically sensitive pump prices for U.S. drivers just ahead of key national elections.
Energy ministers meeting at the Vienna headquarters of the OPEC oil cartel cut production by 2 million barrels per day starting in November at their first face-to-face meeting since the start of the Covid-19 pandemic.
Besides a token trim in oil production last month, the major cut is an abrupt turnaround from months of restoring deep cuts made during the depths of the pandemic and could help alliance member Russia weather a looming European ban on oil imports.
In a statement, OPEC+ said the decision was based on the “uncertainty that surrounds the global economic and oil market outlooks.”
The US had been pushing for OPEC+ not to cut output as it tries to keep energy prices down amid the disruption of Russia's invasion of Ukraine.
Reacting to the alliance's announcement on Wednesday, US President Joe Biden said he was "disappointed" with the cartel's decision to slash oil production output, saying it will hurt the world economy.
"The president is disappointed by the shortsighted decision by OPEC+," National Security Advisor Jake Sullivan and top economic advisor Brian Deese said in a statement.
The supply cut will hit countries "already reeling" from high prices while "the global economy is dealing with the continued negative impact" of Russia's attack on Ukraine, the statement said.
OPEC+ renews cooperation with Russia
The impact of the production cut on oil prices — and thus the price of gasoline made from crude — will be limited somewhat because OPEC+ members are already unable to meet the quotas set by the group.
The alliance also said it was renewing its cooperation between members of the OPEC cartel and non-members, the most significant of which is Russia. The deal was to expire at year's end.
The decision comes as oil trades well below its summer peaks because of fears that major global economies such as the US or Europe will sink into recession due to high inflation, rising interest rates meant to curb rising consumer prices, and uncertainty over Russia’s war against in Ukraine.
Oil supply could face further cutbacks in coming months when a European ban on most Russian imports takes effect in December. A separate move by the US and other members of the Group of Seven wealthy democracies to impose a price cap on Russian oil could reduce supply if Russia retaliates by refusing to ship to countries and companies that observe the cap.
The EU agreed Wednesday on new sanctions that are expected to include a price cap on Russian oil.
Russia “will need to find new buyers for its oil when the EU embargo comes into force in early December and will presumably have to make further price concessions to do so,” analysts at Commerzbank wrote in a note. “Higher prices beforehand — boosted by production cuts elsewhere — would therefore doubtless be very welcome.”
Dwindling prospects for a diplomatic deal to limit Iran’s nuclear program have also lowered prospects for a return of as much as 1.5 million barrels a day in Iranian oil to the market if sanctions are removed.
Oil prices surged this summer as markets worried about the loss of Russian supplies from sanctions over the war in Ukraine, but they slipped as fears about recessions in major economies and China’s COVID-19 restrictions weighed on demand for crude.
International benchmark Brent has sagged as low as $84 in recent days after spending most of the summer months over $100 per barrel.
At its last meeting in September, OPEC+ reduced the amount of oil it produces by 100,000 barrels a day in October. That token cut didn’t do much to boost lower oil prices, but it put markets on notice that the group was willing to act if prices kept falling.
(FRANCE 24 with AP and AFP)
