According to Dan Yergin, Vice President of S&P Global, Washington considers OPEC+’s decision to cut oil production by more than 2 million barrels per day as political interference and a “blow” to US President Joe Biden.
On Wednesday, the group of some of the most powerful oil producers in the world agreed to deep production cuts to boost crude oil prices despite calls from the US to pump more to help the global economy.
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“This is seen first and foremost as a blow to Biden, who went to Saudi Arabia. Second, it is seen as somehow politically interfering in the US election, although the cuts will have no effect. until November”.
The decision, taken at the first OPEC and OPEC+ face-to-face meeting in Vienna since 2020, will mark the largest cut since the pandemic began.
Biden visited the Saudi government in July in an effort to increase oil production and control rising energy prices.
Oil prices rose to a three-week high on Wednesday following the announcement after three days of gains. West Texas Intermediate crude rose 1.4% to $87.76 a barrel, while Brent crude rose 1.7% to $93.37 a barrel in early trading.
Weapon Oil
“OPEC+ can fight the West with weaponized oil,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank.
He wrote that the oil supply cuts were “considered in part as a protest against Russia’s oil price cap” and asserted the organization’s “naked desire for prices, not just support”.
Representatives of OPEC member countries attend a press conference after the 45th Joint Ministerial Monitoring Committee and 33rd OPEC and Non-OPEC Ministerial Conference in Vienna, Austria, on October 5, 2022 “There seems to be a little war between [Strategic Petroleum Reserve] Bill Perkins, CEO of Skylar Capital Management, said.
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A production cut of about a million bpd would result in a price increase without affecting volumes, but a larger drop suggests the group is “not concerned with economic woes and geopolitical linkages.” with global partners,” added Varathan.
Yergin, similarly, said the deal was seen as “not economic” but more political in nature.
Decisions are also made when EU reaches agreement on Russia oil price cap as part of a new sanctions package.
“The Russians have signaled in this and other cases that they will do everything they can to lower the oil price cap,” Yergin said.
‘Dangerous game’
“Looks like there’s a small battle between [Strategic Petroleum Reserve] Bill Perkins, CEO of Skylar Capital Management, said.
“In the end, OPEC+ will win that battle, the SPR will eventually run out of food it can draw. So it’s a dangerous game we’re playing there,” he said.
A few weeks ago, the US Department of Energy announced to sell up to 10 million barrels of oil from SPR for delivery in November.
Perkins added that the point the team wanted to make was that the price signals from the market weren’t enough to “cause the investment or supply response” they needed.
Global oil prices spiked to more than $120 per barrel after the Russia-Ukraine war broke out, but fell slightly above $80 per barrel in the week ahead of OPEC+’s decision to cut production.
However, when asked if the alliance’s decision is more encouraging investments in crude oil production and infrastructure, Perkins issued a note of caution.
“It’s a good bet, but it’s a scary world right now,” he said.
“People may feel a little braver to weather the macroeconomic headwinds… That being said, if there’s a giant recession, energy demand is one of the things. must be done first.”
