The member countries of the international organization met physically in Vienna for the first time since the start of the Covid-19 pandemic.
OPEC+, which was back in Vienna on Wednesday for the first time since March 2020, wanted to mark the occasion: it decided to drastically cut oil production quotas to support prices, at the risk of offending the White House. The thirteen members of the Organization of the Petroleum Exporting Countries (OPEC) led by Saudi Arabia and its ten partners led by Russia have agreed on a drop of “two million” barrels a day for the month of November, the alliance said in a statement.
“This is the largest reduction since the pandemic began,” Srijan Katyal of brokerage firm ADSS said in a statement. It will likely “push up prices,” he added, bucking Western efforts to stem soaring energy costs that are weighing on global growth. The decision comes “just as consumers breathed a sigh of relief” as prices at the pump have fallen sharply since this summer, recalls Oanda’s Craig Erlam. The two global crude oil benchmarks have lost ground in recent weeks, hovering around $90 a barrel, a far cry from the highs recorded in March at the start of the war in Ukraine (nearly $140).
The White House in search
Such an announcement “will not be well received by the White House in the run-up to next month’s midterm elections,” Tamas Varga had warned before the meeting at PV Energy. US President Joe Biden has been struggling for months to stem rising prices that are eroding household spending power, even going so far as to travel to Riyadh in July during a highly controversial visit.
At the White House, we tried to put Wednesday’s meeting into perspective, with a senior official stressing that OPEC+ meets “every month with clockwork precision.” The day before, spokeswoman Karine Jean-Pierre had declined any hasty comment but reminded Washington “continues to take action to protect American consumers (…) and ensure adequate supplies to meet needs.”
“Technical Organization”
Asked on arrival about Washington’s likely response, Emirati Energy Minister Souhail ben Mohammed Al-Mazrouei came forward and said it was a “technical organization” that did not interfere in political affairs. Saudi Prince Abdel Aziz bin Salman, who is also present, and Russian Deputy Prime Minister Alexander Novak, who is responsible for energy issues, will address a press conference. A sharp drop in crude oil volumes suits Moscow, “and could therefore be perceived as a further escalation of geopolitical tensions,” comments Ipek Ozkardeskaya, analyst at Swissquote.
Established in 1960 with the aim of regulating the production and price of crude oil through setting quotas, OPEC expanded to include Russia and other partners in 2006 to form OPEC+. In a historic gesture, the members of the alliance decided in spring 2020 to cut almost 10 million euros in view of the collapse in demand in connection with the Covid 19 pandemic. A recipe that worked. This time they want to “get a head start on a possible recession by taking proactive measures,” says Bjarne Schieldrop from Seb. “This would allow them to avoid potential stockpiling and hence low oil prices.”
Back in September, the group lowered its target slightly (by 100,000 barrels) and said it was ready to do more. If the rumors are confirmed, it would be the biggest drop since the pandemic shock. After a bounce earlier in the week, prices showed little reaction as of 13:00 GMT on Wednesday, trading at $91.84 for a barrel of North Sea Brent and $86.36 for a barrel of WTI, its American counterpart.
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