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The OPEC+ alliance of oil-exporting countries on Wednesday decided to sharply cut production to support sagging oil prices, a move that could deal the struggling global economy another blow and raise politically sensitive pump prices for U.S. drivers just ahead of key national elections.
Energy ministers meeting at the Vienna headquarters of the OPEC oil cartel cut production by 2 million barrels per day starting in November at their first face-to-face meeting since the start of the COVID-19 pandemic.
Besides a token trim in oil production last month, the major cut is an abrupt turnaround from months of restoring deep cuts made during the depths of the pandemic and could help alliance member Russia weather a looming European ban on oil imports.
In a statement, OPEC+ said the decision was based on the “uncertainty that surrounds the global economic and oil market outlooks.”
The impact of the production cut on oil prices—and thus the price of gasoline made from crude—will be limited somewhat because OPEC+ members are already unable to meet the quotas set by the group.
The alliance also said it was renewing its cooperation between members of the OPEC cartel and non-members, the most significant of which is Russia. The deal was to expire at year’s end.
The decision comes as oil trades well below its summer peaks because of fears that major global economies such as the U.S. or Europe will sink into recession due to high inflation, rising interest rates meant to curb rising consumer prices, and uncertainty over Russia’s war against in Ukraine.
The fall in oil prices has been a positive to U.S. drivers, who saw lower gasoline prices at the pump before costs recently started ticking up, and for U.S. President Joe Biden as his Democratic Party gears up for congressional elections next month. The national average gasoline price has increased about 7 cents per gallon in the past week. The average price in Marion County on Wednesday was $4.15 per gallon,
White House press secretary Karine Jean-Pierre told reporters Tuesday that the U.S. would not extend releases from its strategic reserve to increase global supplies.
Biden has tried to receive credit for gasoline prices falling from their average June peak of $5.02—with administration officials highlighting a late March announcement that a million barrels a day would be released from the strategic reserve for six months. High inflation is a fundamental drag on Biden’s approval and has dampened Democrats’ chances in the midterm elections.
Oil supply could face further cutbacks in coming months when a European ban on most Russian imports takes effect in December. A separate move by the U.S. 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 observe the cap.
The EU agreed Wednesday on new sanctions that are expected to include a price cap on Russian oil.
Russia “will need to find new buyers for its oil when the EU embargo comes into force in early December and will presumably have to make further price concessions to do so,” analysts at Commerzbank wrote in a note. “Higher prices beforehand—boosted by production cuts elsewhere—would therefore doubtless be very welcome.”
Dwindling prospects for a diplomatic deal to limit Iran’s nuclear program have also lowered prospects for a return of as much as 1.5 million barrels a day in Iranian oil to the market if sanctions are removed.
Oil prices surged this summer as markets worried about the loss of Russian supplies from sanctions over the war in Ukraine, but they slipped as fears about recessions in major economies and China’s COVID-19 restrictions weighed on demand for crude.
International benchmark Brent has sagged as low as $84 in recent days after spending most of the summer months over $100 per barrel.
At its last meeting in September, OPEC+ reduced the amount of oil it produces by 100,000 barrels a day in October. That token cut didn’t do much to boost lower oil prices, but it put markets on notice that the group was willing to act if prices kept falling.
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Well thank goodness the US decide to cut domestic oil production starting in January 2020 so we would become dependent on OPEC again.
Alan, you need to pay attention. Aa of January 2021 more than 20.9 million acres of public lands were leased by oil and gas companies in the West. Of those acres, 9.9 million, or approximately half, sit idle. That’s because our domestic companies wanted to reduce the supply of oil and gas so that prices would increase, benefiting their shareholders.
Price of gas will go up. Another increase due January 1, 2023, when federal excise taxes from the Inflation Reduction Act of 2022 add 17-18 cents/gallon. The Presidential draw-down of the strategic reserve does not have an indefinite amount to work with. Big question is whether it will last until the November elections.
Let’s go Brandon!
Could there be a more inept administration than that with which we have been cursed?
Yes.
If only Brandon could thoroughly botch a pandemic response, so badly that he tanks the economy and causes a precipitous drop in oil and gas prices. Trump was so good at that. Sure, many thousands of Americans died unnecessarily, but at least we had lower gas prices.
Because, surely, if we let Putin have Ukraine, he’ll stop there, right?
He won’t move on to fight any other countries and deprive them of their democracies.
If the cost to rid the world of Putin is higher gas prices, I’m all for ‘em. He’s the culprit.
Bob, you need to pay attention. Aa of January 2021 more than 20.9 million acres of public lands were leased by oil and gas companies in the West. Of those acres, 9.9 million, or approximately half, sit idle. That’s because our domestic companies wanted to reduce the supply of oil and gas so that prices would increase, benefiting their shareholders.
No, Brent; you need to pay attention and quit believing the nonsense the anti-Trump media feeds you and those in your anti-Trump, pro-socialist / Biden / Harris / et al posture want to believe…of which you have made a feast.
We were essentially energy independent by the time Trump left office and that idiot Biden and his acolytes in the mainstream media have thoroughly screwed it up because he is so inept and downright incompetent….and now he is dangerously bleeding down our oil reserves in a desperate attempt to score votes in the mid-terms.
Some people don’t deserve to live in as great a country as we have.
lol okay, Bob. You are angry about socialized economies but also expect the government to force production increases? Pick a battle. We haven’t been truly “energy independent” since 1940.
If the government said they were going to attack/eliminate the need for your product would you continue to invest billions in your product? What is the probability of oil on the unused leases. Talking points don’t solve issues
So, even though Joementia’s press secretary said no more oil would be released from our strategic reserves yesterday, today they announce another 10 million barrels will be released to get them through the mid-terms. They continue to deplete our strategic reserves, yet at the same time beg Venezuela and OPEC for more.
Yesterdays announcement of no more barrels released with today’s reversal after OPEC announced their cut shows how obtuse and out of touch this White House is. As soon as this election is over, gas is going up to $6 or $7/gal. These guys really seem to be more naive (see idiocy) than I even initially thought.
BrentB – you, sir, are a product of CNN. Anyone in oil and gas knows it is about the permitting and regulation from this White House that is preventing fracking and drilling. It has nothing to do with corporate oil and gas profiteering.
== It has nothing to do with corporate oil and gas profiteering. ==
.
*Nothing*? Not even when the gas companies were called out because they were making record profits and they said, “We’re passing the profits along to our shareholders.” ???