Daily Management Review

OPEC+ Agrees To Deep Cuts In Oil Production; Biden Calls It Shortsighted


OPEC+ Agrees To Deep Cuts In Oil Production; Biden Calls It Shortsighted
The oil cartel OPEC+ has agreed to steep cuts in oil production, reducing supply in an already tight market and causing one of the organization's biggest clashes with the West, with the US administration calling the surprise decision shortsighted.
Saudi Arabia, OPEC's de facto leader, said a 2 million barrel per day (bpd) cut in output - equivalent to 2 per cent of global supply - was required to respond to rising interest rates in the West and a weaker global economy.
The kingdom rejected accusations that it was conspiring with Russia, a member of the OPEC+ group, to raise prices, and claimed that the West was often motivated by "wealth arrogance" when criticizing the group.
According to the White House, President Joe Biden will continue to evaluate whether to release additional strategic oil stocks in order to lower prices.
"The President is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of (Russian President Vladimir) Putin’s invasion of Ukraine," the White House said.
Due to soaring inflation, Biden faces low approval ratings ahead of midterm elections and has called on Saudi Arabia, a long-term US ally, to help lower prices.
According to US officials, one of the reasons Washington wants lower oil prices is to deprive Moscow of oil revenue. This year, Biden visited Riyadh but failed to secure firm cooperation commitments on energy. Saudi Arabia's failure to condemn Moscow's actions in Ukraine has strained relations even further.
The decision to cut oil supplies in Vienna on Wednesday could spark a recovery in oil prices, which have fallen to around $90 from $120 three months ago on fears of a global economic recession, rising US interest rates, and a stronger dollar.
Saudi Energy Minister Abdulaziz bin Salman said OPEC+ needed to be proactive as central banks around the world raised interest rates to "belatedly" combat soaring inflation.
The 2 million barrels per day cut announced on Wednesday is based on existing baseline figures, which means the cuts would be less severe because OPEC+ fell about 3.6 million barrels per day short of its output target in August.
Under-production occurred as a result of Western sanctions imposed on countries such as Russia, Venezuela, and Iran, as well as output issues with producers such as Nigeria and Angola.
According to Prince Abdulaziz, the actual cuts would be 1.0-1.1 million bpd.
Analysts at Jefferies estimated the figure to be 0.9 million bpd, while Goldman Sachs estimated it to be 0.4-0.6 million bpd, with cuts coming primarily from Gulf OPEC producers such as Saudi Arabia, Iraq, the United Arab Emirates, and Kuwait.
On Wednesday, benchmark Brent crude surpassed $93 per barrel.
Russia has been accused by the West of weaponizing energy, with soaring gas prices and a scramble to find alternatives causing a crisis in Europe that could result in gas and power rationing this winter.
Meanwhile, Moscow accuses the West of weaponizing the dollar and financial systems like the international payments system SWIFT in retaliation for Russia's deployment of troops into Ukraine in February.
Russian Deputy Prime Minister Alexander Novak, who was placed on the United States' Specially Designated Nationals list last week, also traveled to Vienna to attend meetings.
Novak is not subject to EU sanctions. He and the other members of OPEC+ agreed to extend the agreement with OPEC for another year, until the end of 2023.
The next OPEC+ meeting will be held on December 4. Instead of meeting monthly, OPEC+ will now meet every six months.