London CNN Business —
OPEC+ announced on Wednesday that it will cut oil production by 2 million barrels a day, the biggest cut since the pandemic began, in a move that threatens to skyrocket gasoline prices just weeks before the US midterm elections to drive.
The group of major oil producers, which includes Saudi Arabia and Russia, announced the production cut after their first face-to-face meeting since March 2020 2% of global oil demand.
Brent crude rose 1.5% on the news to over $93 a barrel, adding to further gains ahead of the oil ministers’ meeting this week. US oil rose 1.7% to $88.
The Biden administration slammed the OPEC+ decision in a statement on Wednesday, calling it “short-sighted” and saying it will hurt low- and middle-income countries the most, already grappling with elevated energy prices.
Production cuts will begin in November and the Organization of the Petroleum Exporting Countries (OPEC) and its allies will meet again in December.
In a statement, the group said the decision to cut production was “taken in light of the uncertainty surrounding the global economic and oil market outlook.”
Global oil prices, which surged in the first half of the year, have since fallen sharply on fears a global recession will squeeze demand. Brent crude is down 20% since late June. The global benchmark peaked at $139 a barrel in March after the Russian invasion of Ukraine.
OPEC and its allies, which control more than 40% of world oil production, are hoping to avert demand for their barrels from falling due to a sharp economic slowdown in China, the United States and Europe.
Western sanctions against Russian oil are also muddying the waters. Russia’s production has held up better than forecast as supplies have been diverted to China and India. But the United States and Europe are now working on ways to implement a G7 deal to limit the price of Russian crude oil exports to third countries.
The oil cartel came under heavy pressure from the White House ahead of its Vienna meeting as President Biden sought to secure lower energy prices for US consumers. Senior officials in the Biden administration were lobbying their counterparts in Kuwait, Saudi Arabia and the United Arab Emirates (UAE) to vote against cutting oil production, according to officials.
The prospect of a production cut was portrayed as “total disaster” in draft talks distributed by the White House to the Treasury Department on Monday and obtained by CNN. “It’s important for everyone to be aware of the stakes,” a US official said.
Just a month before the crucial midterm election, US gasoline prices have started to rise again, posing a political risk the White House is desperate to avoid.
Rising oil prices could keep inflation high for longer and put pressure on the Federal Reserve to raise interest rates even more aggressively.
But the impact of Wednesday’s cut, while a bullish signal for oil prices, may be limited as many smaller OPEC producers struggled to hit earlier production targets.
“An announced volume cut is unlikely to be fully implemented by all countries as the group is already 3 million barrels per day below its stated production cap,” Rystad Energy analyst Jorge Leon said in a statement.
Rystad Energy estimates that the global oil market will be oversupplied by the end of the year, which will dampen the impact of production cuts on prices.
– Alex Marquardt, Natasha Bertrand, Phil Mattingly, Mark Thompson and Betsy Klein contributed to this report.