OPEC+ said on Wednesday it will cut oil production by 2 million barrels a day, the biggest cut since the pandemic began, in a move that threatens to push up gasoline prices just weeks before US midterm elections.
The group of major oil producers, which includes Saudi Arabia and Russia, announced production cuts after their first meeting since March 2020. A reduction of approx. 2% global oil demand.
Brent crude rose 1.5% to more than $93 a barrel, adding to gains this week ahead of a meeting of oil ministers. US oil was up 1.7% at $88.
President Joe Biden said Wednesday that he was concerned about OPEC+’s major oil production cuts.
“I have to see what the detail is. I’m worried, it’s not necessary,” CNN’s Arlette Saenz said as she left the White House for Florida.
Production cuts will begin in November, and the Organization of the Petroleum Exporting Countries (OPEC) and its allies will meet again in December.
In a statement, the group said the decision to cut production was “in light of the uncertainty surrounding the outlook for the world economy and the oil market”.
Global oil prices, which rose in the first half of the year, have since fallen sharply on fears that a global recession will dampen demand. Brent crude is down 20% since the end of June. The global benchmark peaked at $139 a barrel in March, following Russia’s invasion of Ukraine.
OPEC and its allies, which control more than 40% of the world’s oil production, are hoping to forestall a drop in demand for barrels from a sharp economic slowdown in China, the United States and Europe.
Western sanctions against Russian oil are also muddying the waters. Russian production has held up better than expected as supply has shifted to China and India. But the United States and Europe are working on ways to implement a G7 deal to limit the price of Russian crude exports to third countries.
The oil cartel came under intense pressure ahead of the White House meeting in Vienna, when President Biden was trying to secure lower energy prices for US consumers. Senior Biden administration officials were lobbying opposition members in Kuwait, Saudi Arabia and the United Arab Emirates (UAE) to vote against cutting oil production, according to officials.
The prospect of production cuts was framed as a “total disaster” in draft talking points sent to the Treasury Department by the White House on Monday, obtained by CNN. “It’s important that we all know how high the stakes are,” said one US official.
With just a month to go before the critical midterm elections, US gasoline prices have started to rise again, creating a political risk the White House is desperately trying to avoid.
Rising oil prices could mean inflation remains higher and increase pressure on the Federal Reserve to raise interest rates even more aggressively.
But the impact of Wednesday’s cut, while a sign of rising oil prices, may be limited as many smaller OPEC producers struggle to meet earlier production targets.
“Any announced volume cuts are unlikely to be implemented in all countries, as the group is already 3 million barrels behind its production ceiling,” Rystad Energy analyst Jorge Leon said in a note.
Rystad Energy believes the global oil market will remain oversupplied until the end of the year, dampening the impact of production cuts on prices.
— Alex Marquardt, Natasha Bertrand, Phil Mattingly and Mark Thompson contributed to this report.