Washington views OPEC+’s decision to cut oil production by more than 2 million barrels per day as political interference and a “blow” against US President Joe Biden, said Dan Yergin, vice president of S&P Global.
On Wednesday, the group of some of the world’s most powerful oil producers agreed to impose massive cuts in production to keep crude prices stable, despite calls from the US to pump more to help the global economy.
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“This is seen primarily as a blow to Biden who came to Saudi Arabia. Secondly, it is seen as some sort of political interference in the US election, although the cut won’t take effect until November.”
The decision, taken at the first in-person meeting of OPEC and OPEC+ in Vienna since 2020, would mark the biggest cut since the start of the pandemic.
Biden visited the Saudi government in July in an effort to ramp up oil production and contain rising energy prices.
Oil prices rose to a three-week high on Wednesday after the announcement after three days of rally. The West Texas Intermediate climbed 1.4% to $87.76 a barrel, while early trading Brent oil rose 1.7% to $93.37 a barrel.
Oil as a weapon
“OPEC+ could be against the West with weaponized oil,” Vishnu Varathan, chief economics and strategy at Mizuho Bank, said in a note.
He wrote that the oil supply cuts are “in part seen as a protest against Russia’s oil price caps” and affirms the organization’s “naked desire for price inflation, not just support”.
Representatives of OPEC member states attend a press conference after the 45th Joint Ministerial Monitoring Commission and the 33rd OPEC-Non-OPEC Ministerial Meeting in Vienna, Austria, on October 5, 2022. “There appears to be a mini-battle between [Strategic Petroleum Reserve] releases at the White House and what’s going on with OPEC+,” said Bill Perkins, CEO of Skylar Capital Management.
Vladimir Simicek | AFP | Getty Images
A production cut of about a million barrels per day would have led to price increases without compromising volume, but the larger cut shows the group’s “disregard for the economic problems of and geopolitical alignment with global partners,” Varathan added. .
Yergin also said the deal is seen “not in economic terms” but more political in nature.
The decision also comes as the EU has reached an agreement to cap Russian oil prices as part of a new sanctions package.
“The Russians have indicated in these and other cases that they will do everything they can to frustrate a price cap on oil,” Yergin said.
“There seems to be a mini-battle between [Strategic Petroleum Reserve] releases at the White House and what’s going on with OPEC+,” said Bill Perkins, CEO of Skylar Capital Management.
“In the end OPEC+ will win that battle, the SPR will eventually run out of food and can 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 point the group wants to make is that price signals from the markets are not enough to “trigger the investment or supply response” it needs.
Global oil prices skyrocketed to more than $120 a barrel after the Russo-Ukraine war broke out, but have fallen to just above $80 a barrel in the week before OPEC+’s decision to cut production.
However, when asked whether the alliance’s decision would encourage more investments in crude oil production and infrastructure, Perkins took a cautious note.
“It’s a good bet, but it’s a scary world right now,” he said.
“People may feel a little braver about braving the macroeconomic headwinds… That said, when there’s a massive recession, one of the first things to do is demand for energy.”
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