OPEC+ is considering a big cut in oil production, a measure that could push up US gas prices

Frankfurt, Germany — The OPEC+ alliance of oil-exporting countries on Wednesday will discuss a potentially large cut in the amount of crude they supply to the global economy — a move that could help Russia weather a looming European ban on oil imports and hike gas prices for US drivers before the national midterm elections.

Energy ministers of the OPEC cartel, of which Saudi Arabia is a leading member, and allied non-members including Russia, are meeting in person at the company’s headquarters in Vienna for the first time since early 2020 at the start of the COVID-19 pandemic.

A production cut could benefit Russia by setting higher prices before the European Union bans most Russian oil imports, a sanction over Ukraine’s invasion that comes into effect later this year, Commerzbank analysts say.

Russia “must find new buyers for its oil after the EU embargo came into force in early December and will probably have to make further price concessions in return,” the analysts write in a statement. “Higher prices up front – fueled by production cuts elsewhere – would therefore certainly be very welcome.”

Moscow also faces a separate push from the US and the other wealthy Group of Seven democracies to impose a price cap on Russian oil by December 5, EU officials said.

Oil prices rose sharply this summer as markets worried about losing Russian supplies to sanctions over the war in Ukraine, but slipped as fears of recessions in major economies and China’s COVID-19 Restrictions weighed on crude oil demand.

The fall in oil prices has been a boon for US drivers, who saw lower gas prices at the pump before costs recently started to rise, and for US President Joe Biden as his Democratic Party prepares for next month’s congressional elections.

It’s unclear how much an output cut would affect oil prices — and thus gasoline prices — as members are already unable to meet quotas set by OPEC+. But Saudi Arabia may not be ready to strain its ties with Russia, even if the world’s largest oil exporter has had concerns about cuts and recently brought Biden leaders together with Chancellor Olaf Scholz to discuss energy supplies.

Analysts at Commerzbank said a small cut would likely push oil prices further lower, while the group would need to withdraw at least 500,000 barrels a day to prop up prices.

Such a production cut “would undoubtedly signal to the market the determination and determination of the cartel to support oil prices,” said UniCredit economist Edoardo Campanella. But the offer would fall less than announced.

“If the group cuts target production by 1 million barrels per day, actual production would likely fall by about 550,000 barrels per day – as countries like Russia or Nigeria that are producing below quota would see their formal target fall but above remain what they are currently able to produce,” said Campanella.

At its last meeting in September, the group cut oil production by 100,000 barrels a day in October. This token cut didn’t do much to boost lower oil prices, but it alerted markets that OPEC+ was poised to act if prices fell further.

International benchmark Brent has fallen as low as $84 in recent days after spending most of the summer months above $100 a barrel. US oil prices fell below $80 a barrel on Friday. Before the meeting, US crude was trading at $86.38 and Brent at $91.66.

The White House declined to comment before OPEC leaders made a final decision on oil production, but press secretary Karine Jean-Pierre told reporters Tuesday the US would not be renewing releases from its strategic reserve to expand global stocks to increase.

“We’re not considering new releases,” said Jean-Pierre.

Biden has sought credit for gasoline prices that have fallen from their average June high of $5.02 – with government officials highlighting an announcement in late March that six months of one million barrels a day would be released from the strategic reserve . High inflation is a fundamental drag on Biden’s approval and has dampened Democrats’ chances in the midterm elections.

Gasoline prices have recently risen due to refinery outages in California and Ohio and have varied widely, from over $6 a gallon in California to under $3 in some parts of Texas and the Gulf Coast, according to the AAA. The national average of $3.80 is up slightly but down from a record high on June 14.

A key factor weighing on oil prices has been fears of recessions in countries like the US and Europe and slowdowns due to China’s tough COVID-19 measures.

Higher inflation is sapping consumer spending power, while central banks are raising interest rates to cool overheated prices, a move that could slow economic growth. Oil prices at their summer highs and higher natural gas prices, boosted by Russian cuts to Europe, helped fuel inflation.

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Associated Press reporter Josh Boak contributed from Washington.

Copyright © 2022 by The Associated Press. All rights reserved.

https://abc13.com/oil-production-opec-gasoline-prices-exports/12296729/ OPEC+ is considering a big cut in oil production, a measure that could push up US gas prices

Russell Falcon

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