The OPEC+ alliance of oil-exporting countries agreed on its deepest cuts to oil production since the 2020 COVID-19 pandemic on Wednesday, curbing supply in an already tight market, causing one of its biggest clashes with the West as the U.S. administration called the surprise decision shortsighted.
Energy ministers meeting at the Vienna headquarters of the OPEC oil cartel cut production by 2 million barrels per day (bpd) starting in November at their first face-to-face meeting since the start of the pandemic.
OPEC's de-facto leader Saudi Arabia said the cut that equals to 2% of global supply was necessary to respond to rising interest rates in the West and a weaker global economy.
The kingdom rebuffed criticism it was colluding with Russia, which is included in the OPEC+ group, to drive prices higher and said the West was often driven by "wealth arrogance" when criticizing the group.
The cut could spur a recovery in oil prices that have dropped to about $90 from $120 three months ago on fears of a global economic recession, rising U.S. interest rates and a stronger dollar.
The White House said President Joe Biden would continue to assess whether to release further strategic oil stocks to lower prices.
"The President is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of (Russian President Vladimir) Putin’s invasion of Ukraine," the White House said.
The U.S. had pushed OPEC not to proceed with the cuts, arguing that fundamentals don't support them, a source familiar with the matter said.
"Higher oil prices, if driven by sizable production cuts, would likely irritate the Biden Administration ahead of U.S. mid-term elections," Citi analysts said in a note.
"There could be further political reactions from the U.S., including additional releases of strategic stocks, along with some wild cards including further fostering of a NOPEC bill," Citi said, referring to a U.S. antitrust bill against OPEC.
JP Morgan also said it expected Washington to put in place countermeasures by releasing more oil stocks.
Biden faces low approval ratings ahead of mid-term elections due to soaring inflation and has called on Saudi Arabia, a long-term U.S. ally, to help lower prices.
U.S. officials have said part of the reason Washington wants lower oil prices is to deprive Moscow of oil revenue. Biden traveled to Riyadh this year but failed to secure any firm cooperation commitments on energy. Relations have been further strained as Saudi Arabia has not condemned Moscow's actions in Ukraine.
Saudi Energy Minister Abdulaziz bin Salman said OPEC+ had needed to be proactive as central banks around the world moved to "belatedly" tackle soaring inflation with higher interest rates.
Lower real cuts
Wednesday's production cuts of 2 million bpd are based on existing baseline figures, which means the cuts would be less deep because OPEC+ fell about 3.6 million barrels per day short of its output target in August.
Under-production happened because of Western sanctions on countries such as Russia, Venezuela and Iran and output problems with producers such as Nigeria and Angola.
Prince Abdulaziz said the real cuts would be 1-1.1 million bpd.
Analysts from Jefferies said they estimated the figure at 0.9 million bpd, while Goldman Sachs put it at 0.4-0.6 million bpd saying cuts would mainly come from Gulf OPEC producers such as Saudi Arabia, Iraq, the United Arab Emirates (UAE) and Kuwait.
Benchmark Brent crude rose above $93 per barrel on Wednesday.
Saudi Arabia and other members of OPEC+ have said they are seeking to prevent volatility rather than target a particular oil price.
The West has accused Russia of weaponizing energy, with soaring gas prices and a scramble to find alternatives creating a crisis in Europe that could trigger gas and power rationing this winter.
Moscow, meanwhile, accuses the West of weaponizing the dollar and financial systems such as the international payments mechanism SWIFT in retaliation for Russia sending troops into Ukraine in February.
Russian Deputy Prime Minister Alexander Novak, who was put on the U.S. special designated nationals sanctions list last week, also traveled to Vienna to participate in meetings.
Novak is not under EU sanctions. He and other members of OPEC+ agreed to extend the cooperation deal with OPEC by another year to the end of 2023.
The next OPEC+ meeting will take place on Dec 4. OPEC+ will move to meet every six months instead of monthly meetings.