OPEC+, back in Vienna on Wednesday for the first time since March 2020, wanted to mark the occasion: it decided to drastically cut 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 its ten partners led by Russia have agreed to a drop of “two million” barrels per day for the month of November, the alliance reported in a statement.
“This is the largest reduction since the start of the pandemic,” Srijan Katyal, from the ADSS brokerage, reacted in a note.
It is likely to “raise prices”, he added, running counter to Western efforts to rein in rising energy costs weighing on global growth.
This decision comes “just as consumers breathed a sigh of relief” as prices at petrol stations had fallen dramatically since this summer, recalls Oanda’s Craig Erlam.
The two world crude oil benchmarks have lost ground in recent weeks, hovering around $90 a barrel, a far cry from the highs seen in March at the start of the war in Ukraine (nearly $140).
The White House on the prowl
Such an announcement “will not be well received by the White House in the run-up to next month’s midterm elections,” PV Energy’s Tamas Varga warned before the meeting.
US President Joe Biden has been fighting for months to try to rein in skyrocketing prices that are eroding household purchasing power, even going so far as to travel to Riyadh in July for a highly controversial visit.
At the White House, we tried to put this meeting in perspective on Wednesday, a senior official emphasizing that OPEC+ meets “every month with clockwork accuracy.”
La veille, la porte-parole Karine Jean-Pierre avait declined to comment prematurely, tout en rappelant that Washington “continues to take measures to protect American consumers (…) and to be sure of an offer to respond to the demand”.
Asked upon arrival about the expected reaction from Washington, Emirati Energy Minister Souhail ben Mohammed Al-Mazrouei got in touch, saying it was a “technical organization” that did not mix political issues.
Also present, Saudi Prince Abdel Aziz bin Salman and Russian Deputy Prime Minister in charge of energy affairs, Alexander Novak, will speak at a press conference.
A sharp drop in crude volumes suits Moscow, “and therefore could be perceived as a further escalation of geopolitical tensions,” says Swissquote analyst Ipek Ozkardeskaya.
Created in 1960 with the aim of regulating the production and price of crude oil, through the establishment of quotas, OPEC was 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 to cut almost 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 ahead of a possible recession through proactive measures,” says Seb’s Bjarne Schieldrop. “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 willing to do more. If the rumors are confirmed, it would be the biggest reduction since the pandemic scare.
After making a jump at the beginning of the week, prices barely reacted this Wednesday around 13:00 GMT, at $91.84 a barrel for North Sea Brent, and $86.36 a barrel for WTI, its counterpart. American.
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