OPEC + agreed to reduce its collective production limit by 2 million barrels per day, which fueled tensions with the US as reported Bloomberg.
The cartel seeks to stop the fall in oil prices caused by the weakening of the world economy.
This is the largest reduction by the Organization of the Petroleum Exporting Countries and its allies since 2020, which will result in a supply reduction of about half the size of the main number.
Several member countries are already pumping well below their quotas, meaning they would already be meeting their new limits without having to cut production.
The decision risks adding another shock to a world already struggling with inflation fueled by high energy costs. United States President Joe Biden was “disappointed by the blind decision” that will harm the world economy, the White House said in a statement.
In addition to the cuts that will take effect from November, OPEC+ extended its cooperation agreement until the end of 2023. Supply restrictions will remain in place until the end of next year, unless the market changes, the energy minister said. Saudi Arabia, Prince Abdulaziz Bin Salman.
“OPEC wants prices around $90,” Nigerian Minister of State for Petroleum Resources Timipre Sylva said after the meeting. “It would destabilize some economies,” he added, if crude fell below that level.
Oil rose as much as 2.4% to $93.96 a barrel in London, the highest level in three weeks.
US officials made calls to their counterparts in the Gulf trying to push back against the move to cut production, according to people familiar with the situation. President Biden has long been pushing OPEC+ to increase production, visiting Saudi Arabia earlier this year seeking lower prices for Americans before the midterm elections in November.
Oil prices could return to $100 USD
White House national security adviser Jake Sullivan and National Economic Council director Brian Deese said in a statement after the OPEC+ meeting that the United States would release another 10 million barrels of oil from the Strategic Reserve. in November and that “the president will continue to direct SPR releases as appropriate to protect American consumers and promote energy security.”
The 2 million barrels per day cut will be measured against the same baseline as previous OPEC+ deals, Amir Hossein Zamaninia, OPEC governor for Iran, told reporters in Vienna after the meeting. Shared pro rata among members, that would require just eight countries to curb actual production and achieve an actual reduction of about 900,000 barrels a day, according to Bloomberg calculations based on September production figures.
OPEC+ will no longer hold monthly meetings, Zamaninia said. The group’s Joint Ministerial Monitoring Committee, which oversees the implementation of the production cuts, will meet every two months, she said.
The president of the United States, Joe Biden, was “disappointed by the blind decision” that will damage the world economy.
Oil rose as much as 2.4% to $93.96 a barrel in London, the highest level in three weeks.
Supply restrictions may not have the result OPEC+ hopes, said Ole Hansen, head of commodity strategy at Saxo Bank A/S.
“Cutting production right now has been a bit of a mystery to me as the price hasn’t fallen much below the $90-100 Brent range that seems to be acceptable to most growers,” Hansen said. “This decision risks rattling the US while potentially leading the FOMC to tighten for longer as inflation tightens. The result is a stronger dollar, higher bond yields and a global economic slowdown that may take longer to reverse.
