ALEXANDRIA, Va.—OPEC+ has agreed to decrease oil output by two million barrels a day in November, reports CNBC. The group of OPEC and non-OPEC allies are cutting output to spur recovery of crude oil prices, which are around $80 a barrel, having fallen from around $120 in June.
The Biden Administration has placed repeated pressure on the oil group to pump more to lower fuel prices ahead of midterm elections next month. After the cut announcement, the White House said in a statement that it was “disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine.”
The Biden Administration will release another 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 White House said.
In defense of the cuts, OPEC Secretary-General Haitham Al Ghais said during a news conference that OPEC+ was seeking to provide “security [and] stability to the energy markets.”
Asked by CNBC’s Hadley Gamble whether the alliance was doing so at a price, Al Ghais replied: “Everything has a price. Energy security has a price as well.”
According to CNBC, energy analysts said the actual impact of the group’s supply cuts for November was likely to be limited, with unilateral reductions by Saudi Arabia, the United Arab Emirates, Iraq and Kuwait likely to do the main job.
Analysts also say that it’s tough for OPEC+ to foresee the oil climate more than a month or two into the future because the energy market faces the uncertainty of more European sanctions on non-OPEC producer Russia—including on shipping insurance, price caps and reduced petroleum imports.
“In its own words, OPEC’s mission is to ensure an adequate pricing environment for both consumers and producers. Yet the decision to reduce output in the current environment runs counter to this objective,” Stephen Brennock, a senior analyst at PVM Oil Associates in London, said in a research note.
“Further squeezing already-tight supplies will be a slap in the face for consumers. The selfishly motivated move is aimed purely at benefiting producers,” he added. “In short, OPEC+ is prioritising price above 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 rally back to $100 a barrel—assuming no major bouts of COVID-19 globally and the U.S. Federal Reserve not becoming unexpectedly hawkish.
“Due to the decision, volatility will likely return to the market, and despite concerns about the resilience of the global economy, the oil market is tight, all of which should serve as a tailwind for prices in the fourth quarter,” Reddy said.
He added that while a return to $100 oil is possible, “a more likely scenario in the short term is that oil prices hover in the $90 to $100 range as the market digests economic data releases.”