Energy ministers from the OPEC cartel, whose main member is Saudi Arabia, and non-member allies including Russia, meet in person at the group’s headquarters in Vienna for the first time since early 2020 at the start of the COVID-19 pandemic.
A cut in production could benefit Russia by setting higher prices ahead of a European Union ban on most Russian oil imports, a sanction against invading Ukraine that takes effect at the end of the year, according to analysts at Commerzbank.
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,” they wrote in an analyst note. “Higher upstream prices – boosted by production cuts elsewhere – would therefore no doubt be welcome.”
Moscow also faces separate pressure from the United States and other wealthy Group of Seven democracies to impose a price cap on Russian oil by December 5.
Oil prices jumped this summer as markets worried about the loss of Russian supplies due to war-related sanctions in Ukraine, but fell amid fears of recessions in major economies and Chinese restrictions related to COVID-19 weighed on crude demand.
Falling oil prices have been a boon for American drivers, who saw gas prices fall at the pumps before costs recently started to rise, and for US President Joe Biden as his Democratic Party prepares for congressional elections next month.
It’s unclear what impact a cut in production would have on oil prices – and therefore gasoline prices – as members are already unable to meet quotas set by OPEC+.
Still, Saudi Arabia may not want to strain relations with Russia, even though the world’s biggest oil exporter had reservations about the cuts and recently lured Biden executives to German Chancellor Olaf Scholz to talk procurement. energy.
Commerzbank analysts said a small cut would likely drive oil prices further down, while the group would need to withdraw at least 500,000 barrels a day from the market to support prices.
Such a production cut would “undoubtedly signal to the market the cartel’s resolve and determination to support oil prices,” said UniCredit economist Edoardo Campanella. But the offer would fall less than announced.
“If the group reduced target production by 1 million barrels per day, actual production would likely fall by around 550,000 barrels per day – as countries like Russia or Nigeria that produce below their quota would see their official target drop but stay above what they can currently produce,” Campanella said.
At its last meeting in September, the group cut the amount of oil it produces by 100,000 barrels a day in October. This token cut did little to lower oil prices, but it did warn markets that OPEC+ was ready to act if prices continued to fall.
The international Brent benchmark has fallen to $84 in recent days after spending most of the summer months above $100 a barrel.
US oil prices fell below $80 a barrel on Friday. Prior to the meeting, US crude was trading at $86.38 and Brent at $91.66.
The White House declined to comment before OPEC leaders make a final decision on oil production, but press secretary Karine Jean-Pierre told reporters on Tuesday that the United States would not extend oil production. releases from their strategic reserve to increase global supply.
“We are not considering new versions,” said Jean-Pierre.
Biden tried to get credit for gasoline prices falling from their average June peak of $5.02 – with administration officials pointing to an announcement in late March that one million barrels a 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.
Gasoline prices have recently increased due to refinery outages in California and Ohio, and vary widely, ranging from over $6 per gallon in California to under $3 in parts of Texas and the US. Gulf Coast, according to the Federation of Automobile Clubs AAA. The national average of $3.80 is up slightly but down from the June 14 record high.
One of the main factors weighing on oil prices has been fears of recessions in places like the United States and Europe and slowdowns due to China’s strict measures against COVID-19.
Rising inflation is sapping consumers’ purchasing power, while central banks are raising interest rates to calm overheating prices, a move that could slow economic growth. Oil prices at summer highs and higher natural gas prices spurred by Russian cuts in Europe have helped fuel inflation.