US fumes as OPEC+ slashes output by 2m barrels, analysts question motive
The Organisation of Petroleum Exporting Countries and its allies have recently agreed to a drastic two million barrel per day reduction in oil output with authorities in the United States of America kicking against the decision.
The cartel, also known as OPEC+ arrived at the decision during the proceedings of the meeting of ministers in Austria. The decision was reached despite extensive lobbying by the US government actively seeking to weaken Russian foreign exchange income, limiting its ability to finance its ongoing war with Ukraine.
The cut made by OPEC+ is reportedly equivalent to 2% of global daily oil production. However, some OPEC countries that have not been able to meet their previous quotas hence the real daily cut adds up to just below one million barrels daily. OPEC+ countries combined control about 45% of global supply and 65% of reserves.
The Biden administration referred to the cuts as “shortsighted” according to the Financial Times saying it came at a time when “maintaining a global supply of energy is of paramount importance.” The US sees the decision as OPEC+ siding with Russia. A statement from the White House quoted by CNBC said the US Department of Energy would release another 10 million barrels from the country’s strategic petroleum reserves in November.
Saudi Arabian energy minister, Prince Abdulaziz bin Salman said the decision would not harm consumers but would rather “encourage long-term investment in oil production. We will continuously prove that OPEC+ is here not only to stay but here to stay as a moderating force to bring about stability.”
OPEC Secretary-General Haitham Al Ghais also defended the group’s decision to impose deep output cuts, saying the alliance sought to provide “security and stability to the energy markets.”
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Al Ghais told CNBC when asked if OPEC+ was making the decision at a price, “Everything has a price. Energy security has a price as well.” Biden will reportedly be working with US congress on a legislation seeking to weaken OPEC’s control on energy prices in the United States called NOPEC.
Since the decision, oil prices have steadily approached $100pb as the International crude oil benchmark, Brent, traded at $97.92 just as the US West Texas Intermediate traded at $92.64pb as of the time of writing this report.
Analysts opinions on the price cuts have been terse as they refer to the cartel’s decision as strictly political. An associate fellow at the Royal United Services Institute think tank in London, Michael Stephens was quoted as saying by CNBC, “The Saudis are saying that this was a market-driven decision, that they expect demand to drop over the winter — I cannot see how a cut of this volume is anything less than a political statement.
“And even if it were based on technical reasons and purely supply and demand, that is not how it’s being interpreted by the US. And so perception is 90% of the law. And the perception is the Saudis are not holding up their end of the bargain,” Stephens added.
Bill Farren-Price, an energy expert at consultancy Everus tolf FT, “Saudi Arabia has set 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 across the world are battling inflation and the rising cost of living.”
