(CTN News) – Saudi Arabia And Russia OPEC+ has cut oil production by 2 million barrels a day – an amount that could drive oil and gas prices back up after weeks on a downward trend.
The 24 OPEC+ oil-producing countries, including Russia, are meeting at a time when energy costs are soaring. Also, a supply cut will aggravate tensions between Saudi Arabia and the U.S., where President Biden has been trying to curb gas prices.
In a statement, the White House called the decision “shortsighted” and said the administration would “deliver another 10 million barrels from the Strategic Petroleum Reserve to the market next month.”
OPEC+ includes 13 members of the Organization of Petroleum Exporting Countries and 11 non-OPEC members. “Uncertainty surrounds global economic and oil market outlooks,” the group said in a statement.
It’s unclear how much a supply cut would increase prices. With 100 million barrels of oil consumed daily, taking 2 million off the market would be noticeable.
A slowing global economy caused oil prices to slip during the spring. Prices are propped up by Saudi Arabia. They fell below $90 a barrel in September.
This is the alliance’s first in-person meeting since the pandemic began, a sign of renewed focus.
Saudi Arabia is perceived to be trying to push oil prices back to or above $100 per barrel by cutting production and tightening the market, says Energy Aspects’ Yasser Elguindi. The magnitude of the proposed cut surprised people.
“OPEC is trying to shock and awe people with a big production cut,” he says. “They’re trying to keep prices from falling further.”
According to Elguindi, OPEC+’s recent policies should be reversed. As a result of the Coronavirus pandemic in early 2020, the group slashed oil production.
Production has slowly increased since then. Last month, the group cut 100,000 barrels. Analysts predict OPEC+ will announce one-tenth of that.
President Biden’s trip to Saudi Arabia to appeal for production increases during the summer could be seen as a rebuke. Biden had previously said that the kingdom was a pariah state.
Moreover, he publicly blamed Saudi Crown Prince Mohammed bin Salman for the death of Saudi journalist Jamal Khashoggi in 2018.
The release of reserves has caused global supply to exceed demand. OPEC+ may take some oil off the market so that supply and demand are more balanced because of Saudi Arabia.
The European Union could tighten sanctions on Russia by year’s end. Elguindi notes that the Russians have never requested production cuts until now.
Even if OPEC+ announced a sharp reduction, Rousseau says, Russia’s production won’t actually go down – since the country is already producing well below its quota due to sanctions and inability to invest in new infrastructure.
Any potential production cut may be handled primarily by Saudi Arabia.