In an enormous boost for Putin ahead of the European oil embargo, the Saudi-led OPEC+ agreement to reduce oil output by two million barrels per day has been used by the US as evidence that it is siding with Russia.
Karine Jean-Pierre, a spokesperson for the White House, called the choice “misguided” and a “error.”
The choice was reached earlier during a face-to-face discussion in Vienna amongst the energy ministers.
The measure, which also startled Europe, would help Putin whether a potential European oil import embargo and strengthen Kremlin coffers, raising gasoline costs throughout the globe just as winter is approaching.
Additionally, it would worsen inflation, which has already hit decades-high levels in several nations, hurting European consumers already facing exorbitant energy costs.
The coalition also said that it was reviving its collaboration with OPEC cartel members and non-members, most significantly with Russia. The agreement was set to conclude on December 31.
The significant reduction contrasts sharply with months of restoring significant cutbacks imposed at the height of the epidemic, save from a small reduction in oil output last month.
When the European Union prohibition on the majority of Russian imports goes into force in December, the oil supply may see significant reductions.
The decision, according to a statement from OPEC+, was made because of the “uncertainty that surrounds the global economic and oil market outlooks.”
Because OPEC+ members are already unable to achieve the group’s quotas, the effect of the output reduction on oil prices – and hence the price of gasoline manufactured from crude – will be relatively restricted.
If Russia retaliates by refusing to export to nations and businesses who adhere to the limit, a second G7 initiative by the U.S. and other members might decrease supplies.
New penalties, which are anticipated to include a price ceiling on Russian oil, were approved by the EU on Wednesday.
When the EU oil embargo takes effect in early December, Russia “will need to find new clients for its oil and will probably have to make more price concessions to do so,” analysts at Commerzbank stated in a note.
Therefore, it is likely that higher pricing upfront—boosted by production reductions elsewhere—would be much appreciated.
According to Commerzbank analysts, a reduction in output might help Russia by boosting prices before the end of the year. The European Union embargo on the majority of Russian oil imports as a result of the invasion of Ukraine.
Oil prices rose this summer as markets fretted about the loss of Russian supply as a result of sanctions related to the conflict in Ukraine, but then fell when demand for petroleum fell due to concerns about recessions in major countries and China’s COVID-19 limitations.
As US drivers benefitted from cheaper petrol prices at the pump before prices recently began to rise, the drop in oil prices has also been beneficial for President Joe Biden as his Democratic Party prepares for legislative elections next month.
Because members are already failing to achieve the OPEC+ quotas, it is uncertain how much of an effect a production decrease will have on oil prices and, therefore, gasoline costs.
Even though Saudi Arabia is the biggest oil exporter in the world and has recently invited leaders such as Vice President Biden and German Chancellor Olaf Scholz to discuss energy supply, it’s possible that the country would not want to put pressure on its relationship with Russia.
The group would need to remove at least 500,000 barrels per day from the market to raise prices, according to Commerzbank analysts, who predicted that even a moderate reduction would likely result in additional drops in oil prices.
According to UniCredit analyst Edoardo Campanella, such a production reduction “would surely communicate to the market the commitment and resolve of the cartel to sustain oil prices.” However, the supply would decline less than anticipated.
If the group reduces target production by 1 million barrels per day, Campanella predicted that actual output would fall by about 550,000 barrels per day because countries like Russia or Nigeria, which are currently producing below quota, would see their formal target decline while still exceeding what they can currently produce.
The organization decided to cut down on the quantity of oil it produces by 100,000 barrels per day in October during its most recent meeting in September. While the small decrease did nothing to bolster declining oil prices, it did signal to markets that OPEC+ was prepared to move if prices continued to drop.
benchmark on a global scale After spending the most of the summer months over $100 per barrel, Brent has recently dropped as low as $84 per barrel. On Friday, U.S. oil prices dropped under $80 per barrel. U.S. crude traded at $86.38 and Brent at $91.66 before the meeting.
As he boarded Marine One for a trip to hurricane-ravaged Florida, President Joe Biden was questioned about OPEC+’s decision, but he told reporters he “needed to examine the specifics.”
According to reports, he said that he was “concerned” and that it was a “unnecessary” measure.
Biden was “disappointed by the shortsighted decision,” according to a joint statement from National Economic Council Director Brian Deese and White House National Security Advisor Jake Sullivan.
The decision, it said, “will have the most adverse impact on lower- and middle-income countries that are already grappling with elevated energy prices at a time when maintaining a global supply of energy is of paramount importance.”
They added: “In light of today’s move, the Biden Administration will also confer with Congress on other tools and authority to decrease OPEC’s dominance over oil prices.” They also hinted that a fresh legislative push would be in the works.
Although the announcement’s impact on the pumps is yet uncertain, the Biden administration is reportedly trying to prevent a “complete calamity” as a result of the move.
The decision made by OPEC during their meeting on Wednesday may push gas prices back up after the White House praised their record-breaking down this summer. In recent weeks, they have already started to slowly climb back up.
By stressing a late March announcement that a million barrels per day would be released from the strategic reserve for six months, administration officials highlighted Biden’s efforts to claim credit for the drop in gas prices from their average June peak of $5.02.
Biden’s support is fundamentally hampered by high inflation, which has also hurt Democrats’ prospects in the midterm elections.
According to the motoring club federation AAA, gas prices range greatly, from over $6 per gallon in California to under $3 in certain areas of Texas and the Gulf Coast, and have lately increased as a result of refinery disruptions in California and Ohio. Since reaching a record high on June 14, the national average of $3.80 is up marginally but down.
Fears of recessions in regions like the U.S. and Europe as well as slowdowns brought on by China’s rigorous COVID-19 regulations have been significant factors impacting on oil prices.
While central banks raise interest rates to cool down rising prices, which might hinder economic development, higher inflation is eroding consumer buying power. Inflation was fueled by high oil prices during the summer and rising natural gas costs from Russian supply cuts to Europe.