FRANKFURT, Germany — The OPEC+ alliance of oil-exporting nations moved on Wednesday to drastically cut production to support falling oil prices, a move that could deal another blow to the struggling global economy and boost prices at the politically sensitive pump for American drivers just before key national elections.
Energy ministers cut production by 2 million barrels a day more than expected from November after meeting for their first face-to-face meeting at the Vienna headquarters of the OPEC oil cartel since the start of the COVID-19 pandemic.
The group said the decision was based on “uncertainty surrounding the outlook for the global economy and the oil market”. Saudi Energy Minister Abdulaziz bin Salman highlighted the group’s stated role as a guardian of stable energy markets.
“We are here to stay as a moderating force, to bring stability,” he told reporters.
Oil is trading well below its summer highs on fears that major global economies such as the United States or Europe could slide into recession due to high inflation, rising interest rates and energy uncertainty related to Russia’s war in Ukraine. The OPEC+ decision could help member Russia overcome an impending European ban on most of Moscow’s oil, but its impact will have some limits as the alliance countries can’t already meet their quotas.
US President Joe Biden called the OPEC+ decision “short-sighted as the global economy faces the continued negative impact of (Russian President Vladimir) Putin’s invasion of Ukraine.” , White House Press Secretary Karine Jean-Pierre told reporters aboard Air Force One.
“It’s clear that OPEC+ is aligning itself with Russia with today’s announcement,” she said.
Bin Salman dismissed questions referring to backlash in Washington or implying OPEC was helping Russia, saying the discussion was taking place in an apolitical “silo” with an emphasis on prudent management of oil markets.
After a token cut last month, Wednesday’s decision is a sharp turnaround after months of restoring deep cuts made at the height of the pandemic. As demand has rebounded, global energy prices have swung wildly since Russia invaded Ukraine, helping to fuel inflation that is squeezing economies around the world.
Part of the OPEC+ cut is “on paper” because members already cannot supply enough oil to meet their allocations, said Gary Peach, oil markets analyst at energy news firm Energy Intelligence. “Only about half of that is real barrels,” he said.
A cut in oil to nearly $90, which is a ‘comfortable price for all producers’, may not suit customers, but oil ministers are ‘searching the tunnel of recession’ which could lower demand in the coming months, Peach said. “They decided to anticipate this.”
The recent oil price slump has been a boon for American drivers, who saw gas prices drop at the pumps before costs recently started to rise, and for Biden as his Democratic Party prepares for congressional elections next month.
Biden has tried to take credit for lower gasoline prices from their average peak of $5.02 in June – with administration officials pointing to an announcement in late March that one million barrels per day would be released from the strategic reserve for six months. High inflation is a fundamental drag on Biden’s endorsement and has reduced Democrats’ chances in the midterm elections.
Oil supplies could face further reductions in the coming months when a European ban on most Russian imports takes effect in December. A separate move by the United States and other members of the Group of Seven wealthy democracies to impose a price cap on Russian oil could reduce supply if Russia retaliates by refusing to ship to countries and companies that respect the ceiling.
The EU on Wednesday agreed to new sanctions that are expected to include a cap on Russian oil prices, meant to deprive Putin’s country of money for its war machine. It comes amid an energy crisis created by Russian cuts to natural gas supplies to Europe, whose leaders accuse Moscow of retaliating for its support for Ukraine and imposing sanctions.
Russia “will have 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,” Commerzbank analysts said. “Higher upstream prices – spurred by production cuts elsewhere – would therefore undoubtedly be welcome.”
The international Brent benchmark has fallen to $84 in recent days after spending most of the summer months above $100 a barrel. US crude rose to $87.64 and international benchmark Brent rose to $93.21 after the decision.
Associated Press reporters Chris Megerian and Josh Boak in Washington contributed.
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