OPEC+ agreed on a 2 million barrel per day crude oil production cut at the October meeting Wednesday. The oil production cut is the biggest from OPEC+ since April 2020. Oil prices had run up beforehand with estimates running up from 1mbpd last week to 2mpd by today’s meeting. WTI prices rose accordingly trading over $87.60 and Brent over $92 having bounced sharply from recent lows. Brent crude had dropped below $83 a barrel for the first time since January which triggered OPEC+ in their decision. The cut will take place from November and is not to be phased in.
The move comes after the US President Biden having sold the US SPR down to lows not seen since 1984. Very clearly this is a political afront to the US. To that end the cartel has agreed to a larger cooperation agreement. The move comes less than three months after President Biden visited Saudi Arabia in a bid to repair relations between the world’s biggest oil consumer and its biggest crude-oil exporter.
This action takes a significant amount of oil off the market. Based on quotas, the cut is around 1.2mbpd in actual production as a number of countries are producing materially below quota. The SPR releases are set to expire in November, cynics note that coincides with the US Midterm elections.
The decision could undermine a plan by the Group of Seven to cap the price of Russian oil on the global market. OPEC will next meet in December, as such the new quotas will be in place for at least November and December. That’s significant because the Russia oil price cap and EU ban is set to take effect on Dec 5.
The OPEC+ production cut will limit Russia’s loss of market share, said delegates, who acknowledged it represented an unprecedented effort by the world’s biggest oil producers to collectively help Russia with the political and economic problems caused by the war in Ukraine.
Update: Biden Administration Response to OPEC Decision
Statement from National Security Advisor Jake Sullivan and NEC Director Brian Deese
The President is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine. At a time when maintaining a global supply of energy is of paramount importance, this decision will have the most negative impact on lower- and middle-income countries that are already reeling from elevated energy prices.
The President’s work here at home, and with allies around the world, has helped to bring down U.S. gas prices: since the beginning of the summer, gas prices are down $1.20 – and the most common price at gas stations today is $3.29/gallon. At the President’s direction, the Department of Energy will deliver another 10 million barrels from the Strategic Petroleum Reserve to the market next month, continuing the historic releases the President ordered in March. The President will continue to direct SPR releases as appropriate to protect American consumers and promote energy security, and he is directing the Secretary of Energy to explore any additional responsible actions to continue increasing domestic production in the immediate term.
The President is also calling on U.S. energy companies to keep bringing pump prices down by closing the historically large gap between wholesale and retail gas prices — so that American consumers are paying less at the pump.
In light of today’s action, the Biden Administration will also consult with Congress on additional tools and authorities to reduce OPEC’s control over energy prices.
Finally, today’s announcement is a reminder of why it is so critical that the United States reduce its reliance on foreign sources of fossil fuels. With the passage of the Inflation Reduction Act, the U.S. is now poised to make the most significant investment ever in accelerating the clean energy transition while increasing energy security, by increasing our reliance on American-made and American-produced clean energy and energy technologies.
From The TradersCommunity News Desk