The OPEC+ alliance announced a 2 million barrel per day cut in oil production on Wednesday – a move that could push oil and gas prices back on a downward trend after weeks.
The meeting of 24 OPEC+ oil producers, including Russia, comes at a time when much of the world is already struggling with rising energy costs. The supply cuts will heighten tensions between Saudi Arabia and the United States, where President Biden is trying to control prices at the gas pump ahead of midterm elections.
The White House called the decision “short-sighted” and said in a statement that the administration “will release another 10 million barrels from the Strategic Petroleum Reserve into the market next month, continuing the historic releases ordered by the President in March.”
Created in 2016, OPEC+ comprises 13 members of the Organization of the Petroleum Exporting Countries and 11 other non-OPEC members. In a statement, the group justified today’s decision due to “uncertainty surrounding the global economic and oil market outlook”.
It is not clear how much the supply cut will lead to price increases. The world uses up to 100 million barrels of oil a day, so taking 2 million off the market would have a significant effect.
The move is seen as an attempt to prop up prices in Saudi Arabia, which peaked at $120 a barrel in the spring but have since retreated amid concerns about a slowing global economy. They fell below $90 a barrel in September.
Observers say the fact that this is its first face-to-face meeting since the pandemic began is a sign of the alliance’s renewed focus.
Yasser Elquindi, head of macro research at Energy Aspects, said there is a perception that the Saudis are trying to push prices to $100 a barrel or more by cutting production and tightening the market. He says the scale of the proposed cuts has taken people by surprise.
“OPEC is trying to shock and awe with a big production cut number, which is going to get people’s attention,” he says. “They’re trying to support prices to keep them from falling further.”
Elguindi says the production cut would be a complete reversal of recent policy for OPEC+. The group last cut oil production in May 2020, when demand collapsed in the early days of the coronavirus pandemic.
After that, production is gradually increasing. Then last month, the group shifted gears and cut 100,000 barrels from the market. That was about a tenth of what analysts had predicted OPEC+ would announce on Wednesday.
The move is seen as a rebuke to President Biden, who traveled to Saudi Arabia over the summer to appeal for increased production. Despite Biden’s comments in the past, he considered the kingdom a pariah state. He publicly accused Saudi Crown Prince Mohammed bin Salman of complicity in the 2018 death of Saudi journalist Jamal Khashoggi at the Saudi embassy in Istanbul.