OPEC announces oil production cut that could lead to higher prices

WHAT YOU NEED TO KNOW:

• The Organization of the Petroleum Exporting Countries announced an oil production cut of 2 million barrels per day.
• It’s yet to be seen how the cut will directly impact domestic gas prices, but the decreased supply could lead to an increase of about $3 a barrel Wednesday morning.
• President Joe Biden expressed disappointment with the decision, which he described as further argument against the reliance on foreign fossil fuels.

An oil production cut of 2 million barrels per day was announced by the Organization of the Petroleum Exporting Countries (OPEC) and its oil-exporting allies on Wednesday. The decision could potentially spike gas prices again even with the U.S. administration calling for an increase in production for months.

The coalition has 13 OPEC nations and 11 non-members, including Russia. The member nations met in Vienna for their first in-person summit since the pandemic.

President Biden visited Saudi Arabia in July to meet with leaders and call for an increase in oil production. The kingdom later announced a production increase, but it was significantly smaller than the U.S. administration’s request.

The announced cut is roughly equivalent to 2 percent of global supplies and about twice the amount of the U.S. strategic petroleum reserve that is being released daily. On Tuesday, White House press secretary Karine Jean-Pierre said that future releases are yet to be discussed.

It’s yet to be seen how the cut will directly impact domestic gas prices. But the decreased supply could lead to an increase of about $3 a barrel Wednesday morning.

That could also impact the midterms, since Biden recently highlighted lower prices. From about $120 a barrel in June, prices fell to around $80 a barrel.

The production cut could also benefit Russia as they build up their own petroleum revenues before sanctions take effect in December.

Rep. Ro Khanna (D-Calif.), vocal critic of Saudi Arabian leaders, told CNN that the U.S. should withdraw weapons sales in response.

Khanna stated, “President Biden should make it clear that we will stop supplying the Saudis with weapons and air parts if they fleece the American people and strengthen Putin by making drastic production cuts. They need us far more than we need them.” 

Biden expressed disappointment with the decision, which he described as further argument against the reliance on foreign fossil fuels.

National Security Advisor Jake Sullivan and National Economic Council Director Brian Deese stated, “The President is also calling on U.S. energy companies to keep bringing pump prices down by closing the historically large gap between wholesale and retail gas prices — so that American consumers are paying less at the pump.”

They added that the president will meet with Congress to discuss strategies on reducing “OPEC’s control over energy prices.”

LPL Financial’s Chief Global Strategist, Quincy Krosby, stated that the market had expected a much bigger cut. He also noted that Russia sought a much bigger decrease, which could mean that the announced cut was a compromise.

Source: The Hill