VIENNA: Saudi Arabia, Russia and other top oil producers agreed on a major cut in production on Wednesday to boost crude prices – a move denounced by the United States as a concession to Moscow that will further hurt the global economy.
The 13-nation Organization of the Petroleum Exporting Countries (Opec) headed by Riyadh and its 10 allies led by Moscow, collectively known as Opec+, agreed to reduce output by two million barrels per day from November at a meeting in Vienna, the group said in a statement.
It is the biggest cut since the height of the Covid pandemic in 2020, raising fears that it will turbocharge oil prices at a time when countries are already facing soaring energy-fuelled inflation.
Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, defended the move, saying the cartel’s priority was “to maintain a sustainable oil market”, at a press conference following Opec+’s first in-person meeting since March 2020.
But the decision drew a swift rebuke from US President Joe Biden, who had made a controversial trip to Saudi Arabia in July under pressure as Americans faced rising prices at fuel stations.
The timing is also bad for Biden’s political agenda as it comes ahead of US midterm elections next month.
“It’s clear that Opec+ is aligning with Russia with today’s announcement,” White House Press Secretary Karine Jean-Pierre said aboard Air Force One.
National Security Advisor Jake Sullivan and top economic advisor Brian Deese said in a statement that Biden was “disappointed by the shortsighted decision by Opec+”.
Western allies led by the United States have tried to isolate Russia's economy, which relies heavily on energy exports, in retaliation for the invasion of Ukraine.
Opec+ decided to slash its output as oil prices fell below US$90 per barrel in recent months over concerns about the global economy, after soaring to US$140 in the wake of Russia’s invasion of Ukraine earlier this year.
The oil production cut could give sanctions-hit Russia a boost ahead of a European Union ban on most of its crude exports later this year and as the Group of Seven wealthy democracies mull a cap on the country's oil prices.
Russian deputy prime minister Alexander Novak, who is under US sanctions and attended the Opec+ meeting, said a price cap would have a “detrimental effect” on the global oil sector.
He warned that Russian companies would “not supply oil to those countries” that introduce such a cap.
“There is a reason why Russia is ready to participate with an Opec cut – because they are not sure whether they will find somebody to buy this oil,” Patrick Pouyanne, chairman of French oil giant TotalEnergies, said at a London oil industry conference.
Opec+ drastically slashed output by almost 10 million barrels per day (bpd) in April 2020 to reverse a massive drop in crude prices caused by Covid lockdowns. It began to raise production last year after the market improved. Output returned to pre-pandemic levels this year, but only on paper as some members have struggled to meet their quotas.
The group agreed last month on a small, symbolic cut of 100,000 bpd from October, the first in more than a year.
Consumer countries had pushed for months for Opec+ to open taps more widely to bring down prices, but the group ignored them again.
While the cut was not welcomed by the US, several Opec+ nations have struggled to meet their quotas in the first place.
The next ministerial Opec meeting will be on Dec 4. In recent months, the cartel and its partners met online each month.
Higher fuel prices have already inflicted severe damage on Biden's standing this year. Unlike other areas of inflation, fuel prices are literally emblazoned on large signs at gas stations, while motorists in many cases have no option other than to pay up.
As president, however, there are limits on what Biden can do to fight the trend.
The White House said Biden was ordering another dip into the country's Strategic Petroleum Reserve, with 10 million barrels set to be put on the market next month in an attempt to dampen prices rises.
However, those reserves are fast emptying out after record withdrawals ordered by the administration, starting back in March. The reserves are now at their lowest level since July 1984 and it is not clear when the administration plans to purchase a refill.
The next releases will continue “as appropriate to protect American consumers and promote energy security, and (Biden) is directing the secretary of energy to explore any additional responsible actions to continue increasing domestic production in the immediate term,“ a White House statement said.
In addition, the administration will “consult with Congress on additional tools and authorities to reduce Opec’s control over energy prices,” the statement said.
But Andy Lipow, from Lipow Oil Associates, said Wednesday’s decision by Opec+ demonstrates “the waning influence of the US on Opec to maintain an adequate supply of oil.”
“The US can’t release strategic petroleum reserves forever, and eventually it will run out and Opec knows it,” he said.
The only solution, in his view, is to get “more oil out of the ground”. – AFP, Reuters