In Blow To Biden, OPEC Prepares Deep Cuts to Oil Production
By Ahmad Ghaddar, Alex Lawler, and Rowena Edwards
VIENNA/LONDON (Reuters) – OPEC+ agreed on its deepest cuts to oil production since the 2020 COVID pandemic at a Vienna meeting on Wednesday, curbing supply in an already tight market despite pressure from the United States and others to pump more.
The cut could spur a recovery in oil prices that have dropped to about $90 from $120 three months ago on fears of a global economic recession, rising U.S. interest rates, and a stronger dollar.
The United States had pushed OPEC not to proceed with the cuts, arguing that fundamentals don’t support them, a source familiar with the matter said.
“Higher oil prices, if driven by sizeable production cuts, would likely irritate the Biden Administration ahead of U.S. mid-term elections,” Citi analysts said in a note.
“There could be further political reactions from the U.S., including additional releases of strategic stocks, along with some wildcards including further fostering of a NOPEC bill,” Citi said, referring to a U.S. antitrust bill against OPEC.
JPMorgan also said it expected Washington to put in place countermeasures by releasing more oil stocks.
OPEC+ sources said the agreed production cuts of 2 million bpd or 2% of global demand would be made from existing baseline figures.
That means the cuts would be less deep because OPEC+ fell about 3.6 million barrels per day short of its output target in August.
Under-production happened because of Western sanctions on countries such as Russia, Venezuela, and Iran and output problems with producers such as Nigeria and Angola.
Goldman Sachs analysts said they estimated the real production cuts would therefore amount to 0.4-0.6 million bpd mainly by Gulf OPEC producers such as Saudi Arabia, Iraq, the United Arab Emirates, and Kuwait.
Analysts from Jefferies said they estimated the real cuts at 0.9 million bpd.
OIL PRICES RISE
Saudi Arabia and other members of OPEC+—which groups the Organization of the Petroleum Exporting Countries and other producers including Russia—have said they are seeking to prevent volatility rather than target a particular oil price.
Benchmark Brent crude traded flat at $92 per barrel
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