Opec+ agrees to cut production by 2 million barrels per day

Saudi Arabia and Russia have led the Opec+ cartel to an agreement to sharply cut oil production to boost prices, risking a backlash from the US and European countries already battling rising energy inflation.

The Opec+ group will cut 2 million barrels per daywhich corresponds to 2 percent of the global supply, it said after its first face-to-face meeting in Vienna in almost two years.

The group said it was acting “given the uncertainty surrounding the global economic and oil market outlook and the need to improve long-term oil market guidance.”

The cut decision came despite extensive lobbying by the US government leading up to the meeting and represents a significant break with the Biden administration, which is trying to slash oil and gasoline prices ahead of the crucial November midterm elections.

Washington criticized the cut move, saying it was a “short-sighted decision” at a time when “maintaining a global energy supply is paramount.”

In response, the US said it would continue to release oil from its strategic stockpiles “as needed” and was considering “additional responsible measures” to increase domestic oil supplies.

Biden will also work with Congress on legislation to “reduce Opec’s control over energy prices,” his statement added, in an apparent reference to antitrust legislation known as NOPEC, long considered by U.S. lawmakers, but was never adopted.

Oil prices are up 5 percent since Friday ahead of the session international benchmark Brent rose to $93.95 a barrel after the cut was announced.

Analysts said Saudi Arabia’s move, which would prop up oil prices and hurt Western governments’ efforts to curb Russian oil revenues used to sustain its war in Ukraine, is a significant moment in Riyadh’s 75-year energy alliance with the US .

“Saudi Arabia has put Opec on a collision course with the free world. They have sided with Russia in the name of protective oil market management – just as consumers around the world are battling inflation and the rising cost of living,” said Bill Farren-Price, a veteran Opec observer at consultancy Enverus. “Political consequences for Riyadh will inevitably follow.”

The cartel’s decision to cut comes hours after EU countries agreed to a US plan to impose a price cap on Russian oil exports, an attempt by Western countries to slash crude oil and fuel prices. Saudi Arabia and other OPEC Gulf states feared this plan could drive down oil prices across the board and even be used against them in the future.

“This is extremely political and a very clear signal of Opec’s dissatisfaction with the price cap,” said Amrita Sen, chief oil analyst at Energy Aspects. “Regardless of whether the price cap is actually in effect, they see it as a dangerous precedent.”

Opec+ members have also been irritated by the Biden administration’s continued release of oil from the reserve allocated for supply emergencies, which is at its lowest level since 1984.

Some analysts said the cuts could push prices higher just weeks before new sanctions are imposed on supplies from Russia, the world’s largest oil exporter.

“Even if the actual cut turns out to be less than the headline, the fact remains that Saudi Arabia-led Opec has decided to cut oil supply significantly, despite Washington’s will,” said Paul Sankey, an oil analyst who attended the conference meeting in Vienna. said.

“This is fundamentally a bad outcome for the Biden administration and also for the global economy.”

https://www.ft.com/content/64d35a40-5144-44f6-afca-c8b88c9d0ad5 Opec+ agrees to cut production by 2 million barrels per day

Adam Bradshaw

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