FRANKFURT, Germany — The OPEC+ alliance of oil-exporting nations moved on Wednesday to drastically cut production to support falling oil prices, a move that could deal another blow to the struggling global economy and push prices higher at the politically sensitive pump for American drivers just before key national elections.
Energy ministers cut production by 2 million barrels a day more than expected from November after meeting for their first face-to-face meeting at the Vienna headquarters of the OPEC oil cartel since the start of the COVID-19 pandemic.
The group said the decision was based on “uncertainty surrounding the outlook for the global economy and the oil market”. Saudi Energy Minister Abdulaziz bin Salman pointed to the cartel’s stated role as a guardian of stable energy markets.
“We are here to stay as a moderating force, to bring stability,” he told reporters.
Along with a token reduction last month, the major reduction in the amount of crude OPEC+ ships around the world is a sharp turnaround after months of restoring deep cuts made at the height of the pandemic. As demand has rebounded, global energy prices have swung wildly since Russia invaded Ukraine, helping to fuel inflation that is squeezing economies around the world.
The impact of the production cut on oil prices – and therefore the price of gasoline made from crude oil – will be somewhat limited as OPEC+ members cannot meet their quotas already.
The move could help alliance member Russia weather an impending European ban on most of Moscow’s oil and comes amid an energy crisis created by Russia slashing the country’s natural gas supply. Europe, whose leaders call it retaliation for backing Ukraine and imposing sanctions.
Oil is trading well below its summer highs on fears that major global economies such as the United States or Europe could slide into recession due to high inflation, rising interest rates interest and uncertainty surrounding the war in Ukraine.
“We are going through a period of various uncertainties, which could happen to us, it’s a cloud that is brewing,” said bin Salman, adding that OPEC+ was looking to stay “ahead of the curve”.
Falling oil prices have been a boon for American drivers, who saw gas prices fall at the pumps before costs recently started to rise, and for US President Joe Biden as his Democratic Party prepares for congressional elections next month.
“The President is disappointed with OPEC+’s short-sighted decision to cut production quotas as the global economy grapples with the continued negative impact of Putin’s invasion of Ukraine,” the statement said. White House in a statement. “At a time when maintaining a global energy supply is of paramount importance, this decision will have the most negative impact on low- and middle-income countries that are already reeling from high oil prices. energy.”
The Biden administration will work with Congress on additional tools to reduce OPEC’s control over energy prices, the statement said.
Biden has tried to take credit for gasoline prices down from their average June peak of $5.02 – with administration officials pointing to an announcement in late March that one million barrels per day would be released from the strategic reserve for six months. High inflation is a fundamental drag on Biden’s endorsement and has reduced Democrats’ chances in the midterm elections.
Oil supplies could face further reductions in the coming months when a European ban on most Russian imports takes effect in December. A separate move by the United States and other members of the Group of Seven wealthy democracies to impose a price cap on Russian oil could reduce supply if Russia retaliates by refusing to ship to countries and companies that respect the ceiling.
The EU agreed to new sanctions on Wednesday which are expected to include a price cap on Russian oil.
Russia “will have to find new buyers for its oil when the EU embargo comes into effect in early December and will likely have to make further price concessions to do so,” Commerzbank analysts said. “Higher upstream prices – spurred by production cuts elsewhere – would therefore undoubtedly be welcome.”
Diminishing prospects for a diplomatic agreement to limit Iran’s nuclear program have also reduced prospects for 1.5 million barrels per day of Iranian oil to return to the market if sanctions are lifted.
Oil prices jumped this summer as markets worried about the loss of Russian supplies due to war-related sanctions in Ukraine, but fell amid fears of recessions in major economies and Chinese restrictions related to COVID-19 weighed on crude demand.
The international Brent benchmark has fallen to $84 in recent days after spending most of the summer months above $100 a barrel. US crude rose to $87.64 and international benchmark Brent rose to $93.21 after the decision.
At its last meeting in September, OPEC+ cut the amount of oil it produces by 100,000 barrels per day in October. The token cut did little to lower oil prices, but it did warn markets that the group was ready to act if prices continued to fall.