June 13, 2024

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OPEC+ agrees to deep oil production cuts, as Biden calls them shortsighted

OPEC+ agrees to deep oil production cuts, as Biden calls them shortsighted

  • OPEC + cuts production by 2 million barrels per day
  • The real reductions are estimated at 1 million barrels per day due to production shortages
  • Biden criticizes the decision and calls it short-sighted
  • Saudi Arabia says criticism of the West is motivated by arrogance of wealth
  • Saudi Arabia says cuts necessary due to high interest rates

VIENNA/LONDON (Reuters) – The Organization of the Petroleum Exporting Countries agreed on Wednesday to drastic oil production cuts, holding back supplies in an already tight market, causing one of the biggest clashes with the West as the US administration called the sudden decision shortsighted.

Saudi Arabia, OPEC’s largest producer, said a production cut of 2 million barrels per day – equivalent to 2% of global supply – was necessary to respond to rising interest rates in the West and a weak global economy.

The kingdom dismissed criticism that it colluded with Russia, which is included in the OPEC + group, to drive prices higher, and said the West was often motivated by “arrogance of wealth” when criticizing the organization.

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The White House said President Joe Biden will continue to assess whether to release more strategic oil stocks to bring prices down.

“The president is disappointed by the shortsighted decision by OPEC+ to cut production quotas as the global economy deals with the continuing negative impact of (Russian President Vladimir) Putin’s invasion of Ukraine,” the White House said.

Biden faces low approval rates ahead of the midterm elections due to rising inflation and has called on Saudi Arabia, a long-term US ally, to help lower prices.

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US officials have said that part of the reason Washington wants to lower oil prices is to deprive Moscow of oil revenues. Biden traveled to Riyadh this year but failed to secure any firm commitments on energy cooperation. Relations were further strained as Saudi Arabia did not condemn Moscow’s actions in Ukraine.

An oil supply cut scheduled in Vienna on Wednesday could lead to a recovery in oil prices, which fell to around $90 from $120 three months ago on fears of a global economic recession, higher US interest rates and a stronger dollar.

Saudi Energy Minister Abdulaziz bin Salman said that OPEC+ needs to be active as central banks around the world move to “belated” response to high inflation by raising interest rates.

real discounts

Wednesday’s production cuts of 2 million bpd are based on current baseline figures, which means the cuts will be less deep because OPEC+ is down about 3.6 million bpd below its August production target.

The production shortage occurred due to Western sanctions on countries such as Russia, Venezuela, and Iran and production problems with producers such as Nigeria and Angola.

Prince Abdulaziz said the real cuts would be 1.0-1.1 million barrels per day.

Analysts from Jefferies said they estimated the figure at 0.9 million bpd, while Goldman Sachs estimated it at 0.4-0.6 million bpd, saying the cuts would come mainly from Gulf OPEC producers such as Saudi Arabia, Iraq, the UAE and Kuwait.

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Benchmark Brent crude rose above $93 a barrel on Wednesday.

The West has accused Russia of weaponizing energy, with rising gas prices and a rush to find alternatives creating a crisis in Europe that could lead to gas and energy rationing this winter.

Meanwhile, Moscow accuses the West of arming the dollar and financial systems such as the Swift International Payments Mechanism in response to Russia’s dispatch of troops to Ukraine in February.

Russian Deputy Prime Minister Alexander Novak, who was placed on the sanctions list for US nationals last week, also traveled to Vienna to participate in the meetings.

Novak is not under EU sanctions. He and other members of OPEC+ agreed to extend the cooperation agreement with OPEC for another year until the end of 2023.

The next OPEC+ meeting will be held on December 4. OPEC+ will move to meeting every six months instead of monthly.

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Editing by Jean Harvey and Elaine Hardcastle

Our criteria: Thomson Reuters Trust Principles.