Saudi Arabia and Russia have led the Opec+ cartel in a deal to make deep oil-production cuts to raise prices, risking a backlash from the US and European countries already battling soaring energy inflation.
The Opec+ group will cut 2 million barrels a day, equivalent to 2 per cent of global supply, according to people familiar with the discussions after oil prices slipped over the last quarter to around $90 a barrel from $120 in early June.
It’s the biggest reduction by the Organization of Petroleum Exporting Countries and its allies since 2020, but will have a smaller impact on global supply than the headline number suggests. Several member countries are already pumping well below their quotas, meaning they would already be in compliance with their new limits without having to reduce production.
Shared pro rata between members, that would require just eight countries to curb actual production and deliver a real reduction of about 880,000 barrels a day, according to Bloomberg calculations based on September output figures.
The decision to cut came despite extensive lobbying by the US government in the run-up to the meeting, and marks a significant breach with the Biden administration, which is seeking to drive down oil and petrol prices ahead of crucial mid-term elections in November.
Oil prices have risen 5 per cent since Friday in the run-up to the meeting, and international benchmark Brent edged higher to $91.95 a barrel after news of the cut, as traders awaited more details.
The US has considered a range of measures to respond if Opec+ succeeds in driving oil prices higher, including restrictions on fuel exports from the US, according to people who have been part of the discussions.
Analysts said Saudi Arabia’s decision to proceed with cuts that would prop up oil prices and damage western governments’ efforts to curb Russian oil income used to sustain its war in Ukraine marked a significant moment in Riyadh’s 75-year-long energy alliance with the US.
“Saudi Arabia has set Opec on a collision course with the free world. They have sided with Russia in the name of protective oil market management – just as consumers across the world are battling inflation and the rising cost of living,” said Bill Farren-Price, a veteran Opec watcher at consultancy Enverus. “There are bound to be political consequences for Riyadh.” – Copyright The Financial Times Limited 2022/Bloomberg