OPEC+ is considering its biggest production cut since 2020, a move Washington is trying to head off with furious diplomatic efforts.
The group is set to discuss a cut to its output limits of as much as 2 million barrels a day, using current targets as a starting point. While a significant reduction, the actual impact on global supply would be smaller because several countries are already pumping below their quotas.
US officials are making calls to counterparts in the Gulf trying to push back against the move, according to people familiar with the situation.
OPEC+ is also considering smaller curbs of 1 million to 1.5 million barrels a day, delegates said. Even a cut on that scale would be a blow to a global economy that is already suffering historic inflation shocks. Washington is looking at potential responses, as President Joe Biden tries to tame pump prices ahead of mid-term elections in November.
“It is hard to overstate how anxious the Biden administration is about a potential resurgence in oil prices,” Bob McNally, founder of Rapidan Energy, said in Vienna. “A large OPEC+ cut would antagonize the White House, though officials may wait to see how prices respond afterward before pulling the trigger on policy responses.”
It’s a particular blow for Biden after his visit to Saudi Arabia earlier this year in search of a new oil deal. And it underscores the strains in the US-Saudi relationship, set against the enduring strength of the kingdom’s ties with Moscow despite the war. Russia’s Deputy Prime Minister Alexander Novak is due to attend the meeting in Austria, adding to the diplomatic angst.
In Vienna, there was little sign the US pressure was working. United Arab Emirates Energy Minister Suhail Al Mazrouei insisted the decision was “technical.”
“It’s very important that it remains as a technical decision and it’s not political,” he told reporters. “That’s why it’s important to look at technical side of the equation and look at any concerns regarding the economy and the status of the economy.”
Already, White House officials have asked the US Energy Department to analyze whether a ban on exports of gasoline, diesel and other refined petroleum products would lower prices, Bloomberg reported on Tuesday. It’s a controversial idea but one that’s gaining traction in some corners of the Biden administration.
As OPEC+ ministers meet in Vienna, European and US leaders are working to curb the revenues that Moscow receives from oil to try to weaken President Vladimir Putin’s war machine. The EU approved a new sanctions package that will severely curtail Russia’s ability to sell crude, while the US is working with allies to implement a price cap on Russian oil.
Oil futures, which jumped on Tuesday as the scale of the cuts being discussed emerged, eased 0.5% on Wednesday.
The US may also consider resorting again to using its Strategic Petroleum Reserve to tame prices, according to some analysts.
“The move from OPEC+ could trigger US countermeasures, including the additional releases from the Strategic Petroleum Reserve,” JP Morgan analysts said in a note.
A massive cut would reflect the group’s concerns about the global slowdown and its impact on demand. But in reality the impact on the market would be less than the headline number. That’s because several members are already pumping far below their official quotas, meaning they could automatically be in compliance with their new limit without having to curb production. Still, it would be the cartel’s largest reduction since the deep cuts agreed at the outset of the Covid-19 pandemic in 2020.
“This is an important meeting,” United Arab Emirates Energy Minister Suhail Al Mazrouei told reporters in Vienna on Wednesday.