OPEC+ makes big oil cut to boost prices; pump costs may rise
FRANKFURT, Germany (AP) — The OPEC+ alliance of oil-exporting countries on Wednesday decided to sharply cut production by two million barrels per day starting in November, to support sagging oil prices
It's a move that could deal the struggling global economy another blow and raise politically sensitive pump prices for US drivers just ahead of key national elections.
Energy ministers made the decision at the Vienna headquarters of the OPEC oil cartel in 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 boon 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.
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.”
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