On Wednesday, the OPEC+ alliance of oil-exporting countries decided to sharply reduce its oil production in an attempt to “boost prices” following the recent downward trend.
At its last meeting in September, OPEC+ announced it would reduce 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, which it has done this week.
The members agreed to cut production by a larger amount than expected: 2 million barrels per day, starting in November. This decision was made in their first face-to-face meeting at the Vienna headquarters of the oil cartel since the start of the COVID-19 pandemic. The official line from OPEC stated the decision was based on the “uncertainty that surrounds the global economic and oil market outlooks.”
Saudi Energy Minister Abdulaziz bin Salman stressed that the cartel’s stated role remains as a guardian of stable energy markets. “We are here to stay as a moderating force, to bring about stability,” he told reporters.
The increase will be welcome news to alliance member Russia, primarily because the increase in oil revenues will help to replenish the cash in its ‘war chest’ that is being burnt through on the back of the Ukraine conflict. It could also help as they attempt to weather a looming European ban on most of Moscow’s oil. This comes amid an energy crisis created by Russia reducing its natural gas supplies to Europe. European leaders have called this a retaliation for their support of Ukraine and their imposed sanctions against Russia.
Despite the increase in price, oil is trading well below its summer peaks. This is due to fears that major global economies, such as the U.S. or Europe, will sink into recessions owing to factors including high inflation, rising interest rates, and the continued uncertainty over the war in Ukraine.
“We are going through a period of diverse uncertainties, which could come our way, it’s a brewing cloud,” bin Salman said, adding that OPEC+ sought to remain “ahead of the curve.”
The White House said in a statement that:
“The President is disappointed by the short-sighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine. At a time when maintaining a global supply of energy is of paramount importance, this decision will have the most negative impact on lower- and middle-income countries that are already reeling from elevated energy prices.”
“The Biden administration will work with Congress on additional tools to reduce OPEC’s control over energy prices,” the statement said. Furthermore, this is likely to lead the U.S. to release more from its strategic reserves in an attempt to soften prices.
