Oil prices rose to a three-week high on Wednesday as the Organisation of the Petroleum Exporting Countries and its Russia-led oil-producing allies (OPEC+) announced that they would cut oil production by two million barrels per day (bpd). The United States (US) criticised the move, calling the decision “short-sighted” and said it indicated that OPEC+ is helping Russia.
At the 33rd ministerial meeting of OPEC+ members in Vienna, the group said it made the “proactive and preemptive” decision in light of “the uncertainty that surrounds the global economic and oil market outlooks, and the need to enhance the long-term guidance for the oil market.” It said members would start making the required cuts from November.
Many in Washington say they see the decision to cut 2 million BPD as an act of aggression against the West. So is OPEC+ using energy as a weapon? CNBC's @_HadleyGamble asks Saudi Arabia's Energy Minister to respond. pic.twitter.com/1nQeLsP4SP
— Emma Graham (@themmagraham) October 5, 2022
The move to slash production by two million bpd, about 2% of the global oil supply, raised oil prices. Brent crude rose by $1.57 to $93.37 per barrel on Wednesday, the highest level since 15 September. Similarly, the US West Texas Intermediary (WTI) crude increased by 1.4% to $87.76 a barrel. OPEC+ officials told Reuters that the cut would help recover oil prices, which had dropped from $120 to $90 in July amid a global economic recession, interest rate increases by the US Federal Reserve, and a strong US dollar.
However, the US rebuked the group’s decision to cut production. National Security Advisor (NSA) Jake Sullivan and National Economic Council Director Brian Deese said in a joint statement that President Joe Biden “is disappointed by the short-sighted decision” of OPEC+, especially when the global economy is suffering due to Russia’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 statement noted.
Leaked White House talking points say an OPEC oil cut would be a “total disaster” & propose threatening OPEC members.
— Michael Shellenberger (@ShellenbergerMD) October 4, 2022
A U.S. official said the White House is “having a spasm & panicking.”
All to avoid more domestic oil production.https://t.co/PhuMFt7jZY
They said Biden on Wednesday directed the release of 10 million barrels of oil from the US’ Strategic Petroleum Reserve (SPR) to help boost production and stabilise oil prices. “The President will continue to direct SPR releases as appropriate to protect American consumers and promote energy security,” the release read.
Furthermore, it said that Biden has urged energy companies “to keep bringing pump prices down […] so that American consumers are paying less at the pump.” The statement also mentioned that the Biden administration will consult with Congress “on additional tools and authorities to reduce OPEC’s control over energy prices.”
The US oil piggy bank is half empty… OPEC+ today announced cutting oil supply by 2mb per day…
— Wall Street Silver (@WallStreetSilv) October 5, 2022
Making Biden’s release of 1mb per day look increasingly futile… and unsustainable as the SPR is getting depleted to dangerously low levels… pic.twitter.com/1PSG1nkxRO
Experts note that the Biden administration is desperate to reduce high gasoline prices in light of next month’s midterm elections, as rising gas prices have led to a decline in his job approval ratings.
In July, Biden travelled to Saudi Arabia in the hope that OPEC members would increase production. To this end, he announced a series of economic and defence deals, including replenishing the defences of its Gulf allies with advanced missile defence systems. However, his trip failed to make an impact on the oil cartel, which has not taken any significant measures to address US concerns.
The US should make it clear to the Saudis that we will cut off their aviation parts supply & stop Raytheon & Boeing from selling to them if they cut oil output to strengthen Putin and thereby fleece Americans. We are not helpless. The Saudis depend on us. https://t.co/HuyJliKINq
— Ro Khanna (@RoKhanna) October 2, 2022
US-Saudi ties were at an all-time low after the Biden administration blamed Saudi Crown Prince Mohammed bin Salman for the 2018 murder of Washington Post journalist Jamal Khashoggi. The US also suspended arms sales to the Kingdom over concerns of human rights violations in Yemen.
Moreover, OPEC+ officials have dismissed the US statement that the group’s decision would help Russia fund its war in Ukraine. Saudi Economy Minister Prince Abdulaziz bin Salman said the move would stabilise the oil market. “Tell me where is the act of belligerence,” he asked reporters during a press conference in Vienna. “We shall act and react to what is happening to the global economy in the most responsible and responsive way,” he stressed.
Wouldn’t need to rely on OPEC if Joe Biden opened up American oil and drilled domestically.
— Rep. Jim Jordan (@Jim_Jordan) October 5, 2022
Just saying.
Echoing Prince Abdulaziz’s remarks, Emirati Energy Minister Suhail Al-Mazroui said the decision was “technical, not political” and insisted that members would not turn OPEC+ into a political organisation.
Despite these assurances, OPEC+ officials told the Wall Street Journal (WSJ) on the condition of anonymity that the production cut “would be a big win for Russia,” which has lost a production capacity of over one million bpd since the beginning of its invasion in February due to Western sanctions. The WSJ said the latest move could also “undermine” an upcoming G7 decision to introduce a price cap on Russian oil imports.