Oil prices fell to around $80 from more than $120 in early June amid growing fears about the prospect of a global economic recession.
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A group of some of the world’s most powerful oil producers agreed on Wednesday to impose deep production cuts, seeking to spur a recovery in crude prices despite calls from the United States to pump more to help the global economy .
OPEC and non-OPEC allies, a group often referred to as OPEC+, decided at their first face-to-face gathering in Vienna since 2020 to cut production by 2 million barrels a day from November.
Energy market players expected OPEC+, which includes Saudi Arabia and Russia, to impose production cuts of between 500,000 barrels and 2 million barrels.
The move represents a major reversal of the alliance’s production policy, which cut output by a record 10 million barrels per day in early 2020 when demand slumped due to the Covid-19 pandemic. The oil cartel has since gradually unwound these record cuts, although several OPEC+ countries are struggling to meet their quotas.
Oil prices fell to around $80 a barrel from more than $120 in early June amid growing fears about the prospect of a global economic recession.
The production cut for November is an attempt to reverse this trend, despite repeated pressure from the US president Joe Bidenthe administration of the group to pump more in order to lower fuel prices before midterm elections next month.
International reference Brent Crude futures were trading at $92.82 a barrel in Wednesday afternoon trading in London, up around 1.1%. United States West Texas Intermediate futures, meanwhile, stood at $87.37, nearly 1% higher.
OPEC+ will hold its next meeting on December 4.
The White House “disappointed”
The White House said in a statement that Biden was “disappointed with OPEC+’s short-sighted decision to cut production quotas as the global economy faces the continued negative impact of Putin’s invasion of Ukraine.”
He said Biden ordered the Department of Energy to release an additional 10 million barrels from the Strategic Petroleum Reserve next month.
“In light of today’s action, the Biden administration will also consult with Congress on additional tools and authorities to reduce OPEC’s control over energy prices,” the House said. White.
The statement added that the OPEC+ announcement served as a “reminder of why it is so important for the United States to reduce its dependence on foreign sources of fossil fuels.”
Certainly, the burning of fossil fuels, such as coal, oil and gas, is the main driver of the climate emergency.
Speaking at a press conference, OPEC Secretary General Haitham Al Ghais defended the group’s decision to impose a major production cut, saying OPEC+ was seeking to ensure “security [and] stability in energy markets.
Asked by CNBC’s Hadley Gamble whether the alliance was doing this at a price, Al Ghais replied, “Everything has a price. Energy security has a price too.”
Energy analysts said the real impact of the group’s supply cuts for November would likely be limited, with unilateral cuts from Saudi Arabia, the United Arab Emirates, Iraq and Kuwait likely to do the main work.
Additionally, analysts said it is currently difficult for OPEC+ to form an opinion more than a month or two into the future as the energy market faces uncertainty from news. European sanctions against non-OPEC producer Russia – including on marine insurance, price caps and cuts in oil imports.
“In its own words, OPEC’s mission is to ensure an adequate pricing environment for consumers and producers. Yet the decision to cut production in the current environment defeats that purpose.” , said Stephen Brennock, principal analyst at PVM Oil Associates in London. , said in a research note.
“A further reduction in already tight supplies will be a slap in the face for consumers. This selfishly motivated decision is only intended to benefit producers,” he added. “In short, OPEC+ is prioritizing price over stability at a time of great uncertainty in the oil market.”
Rohan Reddy, director of research at Global X ETFs, told CNBC that the group’s decision to impose production cuts could see oil prices rise to $100 a barrel — assuming there is no no major Covid episodes around the world and that the US Federal Reserve does not turn unexpectedly hawkish.
“Because of this decision, volatility will likely return to the market, and despite concerns about the resilience of the global economy, the oil market is tight, which should act as a tailwind for prices in the fourth quarter,” he said. Reddy said.
He added that while a return to $100 oil is possible, “a more likely near-term scenario is oil prices hovering between $90 and $100 as the market digests economic data releases.”
—CNBC’s Emma Graham contributed to this article.