OPEC +, back in Vienna on Wednesday for the first time since March 2020, wanted to mark the occasion: it decided on a drastic cut in oil production quotas to support prices at the risk of offending the White House.
The thirteen members of the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and their ten partners led by Russia have agreed to a drop of “two million” barrels per day for the month of November, the alliance said in a statement.
“This is the largest reduction since the start of the pandemic,” reacted in a note Srijan Katyal, of the brokerage firm ADSS. It is likely to “boost prices,” he added, once morest Western efforts to stem soaring energy costs weighing on global growth.
This decision comes “just when consumers breathed a sigh of relief”, prices at the pump having fallen sharply since this summer, recalls Craig Erlam, of Oanda. The two global crude benchmarks have lost ground in recent weeks, hovering around $90 a barrel, a far cry from the highs recorded in March at the start of the war in Ukraine (nearly $140).
The White House on the lookout
Such an announcement “will not be well received by the White House in the run-up to the midterm elections next month,” Tamas Varga had warned before the meeting at PV Energy.
US President Joe Biden has been struggling for months to try to stem the soaring prices that are eroding household purchasing power, even going so far as to go to Riyadh in July during a very controversial visit.
At the White House, we tried to put this meeting into perspective on Wednesday, a senior official stressing that OPEC+ meets “every month with clockwork precision”. The day before, spokesperson Karine Jean-Pierre had declined any premature comment, while recalling that Washington “continues to take measures to protect American consumers […] and ensure sufficient supply to meet demand.
“Technical organization”
Asked on his arrival regarding the reaction to expect from Washington, the Emirati Minister of Energy, Souhail ben Mohammed Al-Mazrouei, kicked into touch, saying that it was a “technical organization” not mixing political issues. Also present, Saudi Prince Abdel Aziz bin Salman and Russian Deputy Prime Minister in charge of energy issues, Alexander Novak, are due to speak at a press conference.
A sharp drop in crude volumes suits Moscow, “and might therefore be perceived as a further escalation of geopolitical tensions”, comments Ipek Ozkardeskaya, analyst at Swissquote.
Historic gesture
Created in 1960 with the aim of regulating the production and price of crude oil, by establishing quotas, OPEC extended in 2006 to Russia and other partners to form OPEC+. In a historic gesture, the members of the alliance had decided in the spring of 2020 on cuts of nearly 10 million in the face of the collapse in demand linked to the Covid-19 pandemic. A recipe that worked.
This time they want to “get a head start on a possible recession through proactive measures,” says Bjarne Schieldrop, from Seb. “Which would allow them to avoid a possible accumulation of inventories and therefore low oil prices”.
Already in September, the group had slightly lowered its target (by 100,000 barrels) and said it was ready to do more. If the rumors are confirmed, it would be the biggest reduction since the shock of the pandemic. After jumping at the start of the week, prices barely reacted on Wednesday around 1:00 p.m. GMT, at 91.84 dollars a barrel of Brent from the North Sea, and 86.36 dollars for a barrel of WTI, its American counterpart.
