OPEC+ agreed its deepest cuts to oil production since the 2020 COVID pandemic at a Vienna meeting on Wednesday, curbing supply in an already tight market despite pressure from the United States and others to pump more.
The cut could spur a recovery in oil prices that have dropped to about $90 from $120 three months ago on fears of a global economic recession, rising U.S. interest rates and a stronger dollar.
The United States had pushed OPEC not to proceed with the cuts, arguing that fundamentals don’t support them, a source familiar with the matter said.
Sources said it remained unclear if cuts could include additional voluntary reductions by members such as Saudi Arabia, or if they could include existing under-production by the group.
OPEC+ fell about 3.6 million barrels per day short of its output target in August.
“Higher oil prices, if driven by sizeable production cuts, would likely irritate the Biden Administration ahead of U.S. mid-term elections,” Citi analysts said in a note.
“There could be further political reactions from the U.S., including additional releases of strategic stocks, along with some wildcards including further fostering of a NOPEC bill,” Citi said, referring to a U.S. antitrust bill against OPEC.
PMorgan also said it expected Washington to put in place countermeasures by releasing more oil stocks.
OIL PRICES RISE
Saudi Arabia and other members of OPEC+ – which groups the Organization of the Petroleum Exporting Countries and other producers including Russia – have said they seek to prevent volatility rather than to target a particular oil price.
Benchmark Brent crude rose towards $93 per barrel on Wednesday, after climbing on Tuesday.
The West has accused Russia of weaponising energy, creating a crisis in Europe that could trigger gas and power rationing this winter.
Moscow accuses the West of weaponising the dollar and financial systems such as SWIFT in retaliation for Russia sending troops into Ukraine in February.
The West accuses Moscow of invading Ukraine, while Russia calls its actions a special military operation.
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.
Relations have been strained between the kingdom and the administration of Biden, who travelled to Riyadh this year but failed to secure any firm cooperation commitments on energy.
“The decision is technical, not political,” United Arab Emirates Energy Minister Suhail al-Mazroui told reporters ahead of the meeting.
“We will not use it as a political organisation,” he said, adding that concerns about a global recession would be one of the key topics.
Russian Deputy Prime Minister Alexander Novak, who was put on the U.S. special designated nationals sanctions list last week, also travelled to Vienna to participate in meetings. Novak is not under EU sanctions.