Washington sees OPEC+’s decision to cut oil production by more than 2 million barrels a day as political interference and a “blow” to US President Joe Biden, said Dan Yergin, vice chairman of S&P Global.
On Wednesday, the group of some of the world’s most powerful oil producers agreed to impose deep output cuts to prop up crude prices, despite calls from the US to pump more to support the global economy.
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“First of all, this is counted as a blow to Biden, who came to Saudi Arabia. Second, it’s seen as a form of political interference in the US election, even though the cut doesn’t go into effect until November.”
The decision, made at the first face-to-face meeting of OPEC and OPEC+ in Vienna since 2020, would be the biggest turning point since the pandemic began.
Biden visited the Saudi government in July to increase oil production and check soaring energy prices.
Oil prices rose to a three-week high on Wednesday following the announcement after three days of rallying. West Texas Intermediate rose 1.4% to $87.76 a barrel, while Brent crude rose 1.7% to $93.37 a barrel in early trade.
oil as a weapon
“OPEC+ could find itself with weapons-grade oil against the West,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, said in a note.
He wrote that the oil supply cuts “are viewed in part as a protest against Russia’s oil price caps” and confirmed the organization’s “naked desire for price lifts, not just support”.
Representatives of OPEC member countries attend a press conference after the 45th Joint Ministerial Monitoring Committee and the 33rd OPEC and Non-OPEC Ministerial Meeting October 5, 2022 in Vienna, Austria [Strategic Petroleum Reserve] White House releases and what’s going on at OPEC+,” said Bill Perkins, CEO of Skylar Capital Management.
Vladimir Simicek | AFP | Getty Images
A production cut of around a million barrels a day would have resulted in price increases without impacting volume, but the larger reduction shows “disregard for economic issues and geopolitical alignment with global partners,” Varathan added.
Yergin also said the deal will be viewed “not in economic terms” but as more of a political nature.
The decision also comes as the EU reached an agreement to cap Russian oil prices as part of a new sanctions package.
“The Russians have signaled in this case and in other cases that they will do everything possible to prevent an oil price cap,” Yergin said.
“Dangerous game”
“There seems to be a little fight between them [Strategic Petroleum Reserve] White House releases and what’s going on at OPEC+,” said Bill Perkins, CEO of Skylar Capital Management.
“In the end, OPEC+ will win this fight, the SPR will eventually run out of food to withdraw. So that’s a dangerous game we’re playing there,” he said.
A few weeks ago, the US Department of Energy announced it would sell up to 10 million barrels of oil from the SPR for delivery in November.
Perkins added that the group would like to point out that price signals from the markets are not enough to “elicit the investment or supply response” that it needs.
Global oil prices surged above $120 a barrel following the outbreak of the Russo-Ukrainian war, but slipped back to just over $80 a barrel in the week before OPEC+ decided to cut production.
When asked if the alliance’s decision would be more encouraging, however Investing in crude oil production and infrastructure, Perkins struck a cautious note.
“It’s a good bet, but it’s a scary world right now,” he said.
“People might feel a little braver braving the macro headwinds… That being said, when there’s a huge recession, energy demand is one of the first things to drop.”