OPEC+ is considering its biggest production cut since 2020 as it tries to stabilize oil prices, a move that risks cranking up tensions with Washington.
The group is set to discuss a cut to its production limits of as much as 2 million barrels a day, using current baselines, delegates said. Still, in reality the cut will have a smaller impact on global supply as several countries are already pumping below their quotas. They may also discuss smaller cuts of 1-1.5 million, delegates said.
A large OPEC+ cut risks adding another shock to the global economy, which is already battling inflation driven by energy costs. It will also irk the US and other consumer countries who have been calling for more production. President Joe Biden visited Saudi Arabia earlier this year in search of a new oil deal — and lower pump prices for Americans ahead of mid-term elections in November.
“It is hard to overstate how anxious the Biden administration is about a potential resurgence in oil prices,” Bob McNally, founder of Rapidan Energy, said in Vienna. “A large OPEC+ cut would antagonize the White House though officials may wait to see how prices respond afterward before pulling the trigger on policy responses.”
Already, White House officials have asked the US Energy Department to analyze whether a ban on exports of gasoline, diesel and other refined petroleum products would lower fuel prices, Bloomberg reported earlier on Tuesday. It’s a controversial idea to bring down prices but is gaining traction in some corners of the Biden administration.
Arriving in Vienna, ministers were tight-lipped about their intentions. Saudi Energy Minister Prince Abdulaziz bin Salman declined to comment on the group’s plans. His counterpart from the United Arab Emirates, Suhail Al Mazrouei, said the group will make a decision after reviewing market data provided by its technical committee.
A reduction of as much as 2 million barrels would reflect the scale of the producer group’s concern that the global economy is slowing in the face of rapidly tightening monetary policy. Also overshadowing the meeting are US efforts to enforce a cap on Russian oil prices — potentially another bearish risk for the market.
Oil futures extended gains in New York, rising more than 3% as ministers gathered.
Several members are already pumping far below their official quotas, meaning they could automatically be in compliance with their new limit without having to curb production. Still, it would be the cartel’s largest reduction since the deep cuts agreed at the outset of the Covid-19 pandemic in 2020.
Earlier this year, Brent crude soared above $125 a barrel following Russia’s invasion of Ukraine in February. It’s since dropped, tempering the spectacular windfall enjoyed by Saudi Arabia, Russia, the United Arab Emirates and other major producers.
OPEC and its partners have been meeting online on a monthly basis and weren’t expected to arrange an in-person gathering until at least the end of this year. These are the first face-to-face talks since 2020, and Russia’s Deputy Prime Minister Alexander Novak is also expected to attend, posing a diplomatic headache for the European Union.