A number of the world’s largest oil-producing countries have agreed to reduce the amount of exports in a decision that is expected to raise international oil prices.
OPEC Plus members, including Saudi Arabia and Russia, said they would cut production by 2 million barrels per day.
The group said it wanted to stabilize prices, which have fallen in recent months as the global economy slows.
But the decision raised fears of rising gasoline prices, which car owners need.
Expectations that countries plan to pump less has already pushed oil prices higher this week. The price of a barrel of Brent crude jumped regarding 2% to more than $93 a barrel on Wednesday.
A spokesman for RAK Automotive said the production cut announced on Wednesday would “inevitably” lead to higher oil prices, leading to higher wholesale fuel costs.
“The question is when and to what extent retailers choose to pass on these increased costs,” said RAC spokesman Simon Williams.
The cut announced by the Organization of the Petroleum Exporting Countries (OPEC) and its allies represents the largest reduction by the organization since the peak of the Corona epidemic in 2020.
It comes despite pleas from the United States and others to pump more, following oil prices soared this spring when the war in Ukraine disrupted supplies.
The White House said in a statement that US President Joe Biden was “disappointed by the short-sighted decision.”
The United States has pledged to continue producing oil from national stocks “as appropriate” and to look for other ways to try to rein in fuel prices, a major issue for American voters in the midterm elections scheduled for November.
The move is also likely to disrupt US-led efforts to cap the price of Russian oil, a plan proposed by the US as a way to limit the flow of money into the country and its use for military purposes.
OPEC members defended their decision as a response to significant “uncertainty” regarding future oil demand amid concerns that the global economy is heading into a recession.
“The decision is technical, not political,” UAE Energy Minister Suhail Al Mazrouei told reporters as OPEC+ members met in Vienna to discuss the plans.
Higher oil prices were a major driver of the consumer price hike that hit countries around the world earlier this year, pushing inflation rates to levels not seen in decades and heightening political tensions.
The recent decline has provided some relief to consumers, even as the prices of many other basic commodities, including food, continue to rise.
A barrel of Brent crude oil was trading at $84.06 in late September, down from highs of around $130 this spring.
Despite lower oil prices and concerns regarding the global economy, Carolyn Payne, chief commodity economist at research firm Capital Economics, said it was an unusual timing for a supply cut.
“Global oil stocks are record low, and so far high prices have failed to dampen demand,” she added.
Analysts said the impact of the cuts was likely to be less significant than their size might suggest, because some countries were already producing less than they said they would, with Capital predicting a 1% drop in global supply as a result.
Kathleen Brooks, director of Minerva Analysys, said production cuts were the “worst case scenario people are looking for”, a scenario that would weigh heavily on Britain’s financial markets and raise fears that prices in the economy will continue to rise.
It “changes the narrative in terms of peak inflation – we may not be there yet,” she said.
oil policy
Analysis by Samir Hashemi, Middle East Business Correspondent
The recent decision by OPEC Plus is not only important for the oil markets, but also for geopolitics.
The fact that the Saudi-led conglomerate made this decision just three months following President Joe Biden’s controversial trip to Saudi Arabia to persuade Crown Prince Mohammed bin Salman to pump more barrels to cool prices is a major blow to the White House.
This move not only risks higher oil prices, but will also damage efforts by the West to constrain the income of Russian oil used to sustain its war in Ukraine.
Many countries will see this as a clear indication that the major oil producers, especially Saudi Arabia, are standing by Russia in the name of preemptively managing the oil market.
The decision appears to have gained support across the group as OPEC+ energy ministers agreed to the proposal in a 30-minute meeting.
As far as the oil markets go, even though this is a significant drop, the actual impact on global supplies on the ground will be less because many OPEC+ members are already pumping well below their official quotas.
But this may not be enough to calm the oil markets in the coming days.