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OPEC and Russia cut oil production to boost prices. USA clashes with Saudi Arabia

2022-10-05 21:33:47Biznes SHKRUAR NGA REDAKSIA VOX
OPEC and Russia cut oil production to boost prices. USA clashes with Saudi
A refinery in Italy owned by Lukoil, Russia's state oil company

The Organization of the Petroleum Exporting Countries, OPEC+, decided on Wednesday to significantly reduce production in response to lower fuel prices. This measure could have significant consequences for the struggling global economy, and raise prices for American consumers, which could have a political impact on the elections for the US Congress in November.

During the meeting in Vienna, the Energy Ministers of the OPEC countries decided to reduce production by 2 million barrels per day, starting in November. This is the first meeting where the ministers participate in person since the beginning of the pandemic.

The November production cut could benefit OPEC member Russia, while European countries have pledged to end Russian oil imports as soon as possible.

Apart from a token cut in oil production last month, the drastic cut is an unexpected reversal, as OPEC had continued to increase production after deep cuts made during the pandemic.

OPEC+ said in a statement that the decision was based on "uncertainty about the prospects of the global economy and the oil market".

President Joe Biden expressed disappointment with the decision that the White House considered "short-sighted".

Biden called on his administration and Congress to explore ways to increase U.S. energy production and reduce OPEC's grip on energy prices following OPEC's announcement, the White House said.

The organization's move underscores the growing gap between the United States and Saudi Arabia on energy policy.

"The president is disappointed by OPEC+'s short-sighted decision to cut production quotas as the global economy grapples with the continued negative impact of (Russian President Vladimir) Putin's aggression against Ukraine," national security adviser Jake Johnson said in a statement. Sullivan and National Economic Council director Brian Deese.

OPEC's decision comes as crude oil trades at a price well below the limit set in the summer due to fears that major world economies such as the US and Europe will sink into recession due to high inflation, growth of interest rates aimed at curbing rising consumer prices and uncertainty surrounding Russian aggression in Ukraine.

The drop in the price of fuel was welcomed by Americans, who are now experiencing price increases again, as well as by President Joe Biden as his Democratic Party prepares for elections in the US Congress next month.

White House spokeswoman Karine Jean-Pierre told reporters on Tuesday that the US will not extend the use of fuel from its strategic stockpile.

In June, the average price of fuel was about 1.3 dollars per liter. President Biden has tried to score points by lowering the price, while administration officials said in late March that one million barrels per day from the strategic reserve would be made available for six months straight.

After Wednesday's decision, Biden warned that he would continue to direct the release of oil from the country's Strategic Petroleum Reserve "as needed."

High inflation is the main factor that has influenced the decline of support for President Biden and has reduced the chances of the Democrats for the November elections.

The impact of the production cut on fuel prices will be somewhat limited because member countries in OPEC+ are already unable to meet the quotas set by the group.

The alliance also said it was renewing cooperation between OPEC members and non-member countries, the most important of which is Russia. The deal was set to expire at the end of the year.

Oil supplies could face further cuts in the coming months as Europe freezes most Russian imports in December. Meanwhile, the US and other G-7 member countries have plans to impose a price ceiling on Russian oil, which could reduce supplies if Russia retaliates by refusing to sell oil to countries and companies that respect the price cap.

The EU agreed on Wednesday to new sanctions that are expected to include a price cap on Russian oil.

Russia "will need to find new buyers for its oil when the EU embargo comes into effect in early December and will likely have to make further price concessions to do so," analysts say. German bank Commerzbank.


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