In what seems to be one of the significant developments in the oil market, the Organization of Petroleum Exporting Countries and non-OPEC allies, a group jointly referred to as OPEC+, announced its decision to limit their total oil production targets by 2 million barrels a day.
The decision was taken during the 33rd OPEC and non-OPEC Ministerial Meeting at the OPEC Secretariat in Vienna, Austria, on Wednesday, October 05, 2022.
The move is expected to spur the rise in global oil prices that plummeted amidst the global geo-political outlook. Reportedly, oil prices have drastically been reduced to $80 a barrel from more than $120 in early June amid growing fears about global economic recession.
The powerful energy cartel in its statement released said, “In light of the uncertainty that surrounds the global economic and oil market outlooks, and the need to enhance the long-term guidance for the oil market, and in line with the successful approach of being proactive, and pre-emptive, which has been consistently adopted by OPEC and non-OPEC Participating Countries in the Declaration of Cooperation, the Participating Countries decided to adjust downward the overall production by 2 mb/d from the August 2022 required production levels, starting November 2022 for OPEC and non-OPEC Participating Countries as per the attached table.”
Hailing the group’s decision, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said ‘the group’s actions were intended to encourage long term investment in oil production’.
“Show me where the act of belligerence is,” the Saudi Minister added responding to a question over the group’s decision .
However, Wednesday’s mohas also raised serious concern worldwide, with analysts suggesting the move is in sharp rebuke to the Biden administration’s efforts in stemming Moscow’s aggressive posture towards Ukraine. The analysts have suggested the current cut will enable Moscow to sell oil for higher prices on the global market.
Decision Effective in November
In a statement released, OPEC+, the alliance of oil exporting countries, informed that the decision to trim oil production by 2mn barrels a day would take effect in November. It is pertinent to note that the 2mn barrel/day sharp cut in oil production is equivalent to 2 percent of the global oil production drop.
Meanwhile, the decision over a significant cut in crude oil production comes after two years since the pandemic.
US calls out OPEC+’s decision
Expressing strong discontentment over the decision to cut the production quota amidst the geo-political situation, the White House in a statement said that this ‘shortsighted decision’ will pose serious consequences to lower and middle income countries reeling from elevated energy prices.
“At a time when maintaining a global supply of energy is of paramount importance, this decision will have the most negative impact on lower and middle income countries that are already reeling from elevated energy prices,” the White House said.
The decision came amidst the US’s rigorous push to oil producing countries to refrain from cutting down production, in the wake of the conflict in Ukraine-possessing a cascading impact on the global economy.
Further, in a statement released, National Security Advisor Jake Sullivan and NEC Director Brian Deese added that under President Biden’s direction, the Department of Energy will deliver another 10 million barrels from the country’s Strategic Petroleum Reserve to market next month, in an effort to control energy prices.
The statement also mentions the US government’s announcement ‘to consult with Congress on additional tools and authorities to reduce OPEC’s control over energy prices’.
