OPEC+ approves deep oil production cut despite US pressure

OPEC+ agreed on Wednesday to its deepest cut in oil production since the start of the Covid-19 pandemic in 2020, tightening supply in a tight market despite pressure from the United States and others for more production.

At a meeting in Vienna, the group decided to cut oil production by two million barrels a day, sources told Reuters.

The cut could spur a rebound in oil prices that have fallen to around $90 from $120 three months ago on fears of a global economic recession, rising interest rates US and a stronger dollar.

Sources said it was not yet clear whether the cuts could include additional voluntary reductions by members such as Saudi Arabia or whether they could include the group’s existing underproduction.

The United States has pressured OPEC not to proceed with the cuts, arguing that the fundamentals do not support them, said a source familiar with the matter.

“There could be more U.S. policy reactions, including additional strategic inventory releases, along with some wildcards, including the promotion of a NOPEC bill,” Citi said, referring to a U.S. antitrust bill against OPEC. .

JPMorgan also said it expected Washington to implement countermeasures by releasing more oil inventories.

PRICES GO UP

Oil prices rose on Wednesday (5) to three-week highs after the announcement of the cuts. Brent rose $1.57, or 1.7%, to $93.37 a barrel, after peaking at $93.96, the highest since Sept. 15.

US WTI crude gained $1.24, or 1.4%, to settle at $87.76 a barrel. It hit $88.42 a barrel during the session, also the highest since Sept.

OPEC+, including Russia, said it seeks to avoid volatility rather than targeting a particular oil price.

The West has accused Russia of using energy as a weapon, creating a crisis in Europe that could trigger gas rationing this winter.

Moscow accuses the West of using the dollar as a weapon and financial systems, like Swift, in retaliation for Russia’s invasion of Ukraine.

Part of the reason Washington wants lower oil prices is to deprive Moscow of oil revenue, while Saudi Arabia has not condemned Moscow’s actions.

Control over prices

Rising fuel prices have already damaged US President Joe Biden politically this year, but the Democrat sees his ability to fight it as limited.

The White House announced that, to offset the rise in prices, the United States “will put on the market next month 10 million barrels” of oil from the country’s Strategic Reserve.

But those reserves are rapidly depleting after record withdrawals ordered by the government since March, to the point where they have reached their lowest level since July 1984.

According to the statement, Biden directed the Department of Energy to “examine any other action responsible for continuing to increase domestic production.” The administration “will consult Congress on additional tools and mechanisms to reduce OPEC’s control over energy prices.”

Andy Lipow of Lipow Oil Associates believes the oil alliance’s decision demonstrates “the waning of US influence in OPEC to maintain an adequate supply of oil.”

“The United States cannot use its strategic reserves indefinitely,” Lipow continued. “They will eventually run out, and OPEC knows that. You have to have a plan, but the US government hasn’t adapted.”

According to Lipow, the only solution is to extract more oil in the United States.

That, however, would go against Biden’s climate priorities and his efforts to move the country away from oil and gas and towards clean energy.

“Today’s announcement is a reminder of why it is so important for the United States to reduce its dependence on foreign sources of fossil fuels,” the White House said.