An organization of some of the world’s toughest oil producers agreed on Wednesday to impose steep production cuts, to boost a recovery in crude costs despite calls from the United States to pump more to help the global economy.
OPEC allies and non-OPEC allies, an organization known as OPEC, made the decision at their first face-to-face rally in Vienna since 2020 to cut output by 2 million barrels the next day starting in November.
Energy market participants had expected OPEC, Saudi Arabia and Russia, to impose production cuts of between 500,000 barrels and 2 million barrels.
The move represents a major reversal of the alliance’s production policy, which cut output to a record 10 million barrels in line with the day in early 2020 when demand plummeted due to the Covid-19 pandemic. Since then, the oil cartel has gradually undone those record cuts, several OPEC countries are struggling to meet their quotas.
Oil fell to about $80 a barrel from more than $120 in early June amid growing fears about the prospect of a global economic recession.
November’s production cut is an attempt to counter that trend, despite repeated pressure from U. S. President Joe Biden’s administration for the organization to pump more to reduce fuel costs ahead of next month’s midterm elections.
International benchmark Brent futures were trading at $92. 82 a barrel in Wednesday afternoon trading in London, up about 1. 1%. Meanwhile, West Texas Intermediate futures stood at $87. 37, up nearly 1%.
OPEC will hold its next assembly on Dec. 4.
The White House said in a statement that Biden was “disappointed by OPEC’s short-sighted resolve to reduce production quotas as the world economy faces the continued negative effect of Putin’s invasion of Ukraine. “
He said Biden ordered the Energy Department another 10 million barrels of strategic oil reserve next month.
“In light of today’s action, Biden’s management will also consult with Congress on more equipment and the government to reduce OPEC energy surcharges,” the White House said.
He added that OPEC’s announcement served as a “reminder of why it is so vital for the United States to reduce its dependence on foreign fossil fuel resources. “
Undoubtedly, the burning of fossil fuels, such as coal, oil and gas, is the main driving force of the climate emergency.
Speaking at a news conference, OPEC Secretary-General Haitham Al Ghais defended the group’s resolve to impose a significant production cut and said OPEC seeks to ensure “the security [and] stability of energy markets. “
Asked through CNBC’s Hadley Gamble if the alliance did it for a price, Al Ghais replied: “Everything has a price. Energy security also comes at a price. “
Energy analysts said the real effect on the group’s supply cuts for November would likely be limited, with unilateral cuts in Saudi Arabia, the United Arab Emirates, Iraq and Kuwait likely to do the main job.
In addition, analysts said lately it is difficult for OPEC to form an opinion within a month or two, as the energy market faces the uncertainty of new European sanctions against non-OPEC Russia, adding maritime insurance, value limits and reduced oil imports.
“In his own words, the OPEC project is a good enough price environment for consumers and producers. However, the resolve to reduce production in the existing environment runs counter to that target,” said Stephen Brennock, principal analyst at PVM Oil Associates in London. said in a study note.
“Extra relief in already adjusted materials will be a slap in the face for consumers. This self-centered resolution aims to take advantage of producers,” he added. “In short, OPEC is prioritizing costs over stability at a time of wonderful uncertainty in the oil market. “
Rohan Reddy, director of studies at Global X ETFs, told CNBC that the group’s resolve to impose production cuts may cause oil costs to rise to $100 a barrel, assuming there are no primary Covid episodes in the world and that the U. S. Federal Reserve is not allowed to do so. UU. no becomes a hawk
“As a result of this decision, volatility will most likely return to the market and, despite considerations about the resilience of the global economy, the oil market is tight, serving as a tailwind for costs in the fourth quarter. “Reddy said.
He added that while it is possible to return to $100 of oil, “a more likely situation in the short term is that oil costs will range between $90 and $100 as the market digests economic data releases. “
—CNBC’s Emma Graham contributed to this report.
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