In order to stabilize the declining oil prices, the OPEC+ organization once again launched large-scale production cuts, and international oil prices also rebounded strongly immediately.
On October 5, local time, the OPEC+ organization held a joint ministerial meeting in Vienna. OPEC and other oil-producing allies unanimously decided to reduce the organization’s oil production by 2 million from the August production level starting from November 2022. barrel/day. This production reduction is equivalent to 2% of the total global crude oil supply.
However, from the perspective of the United States, OPEC+’s decision to reduce production is very short-sighted and disappointing. The U.S. government will take all possible means to cool down the crude oil market, including a series of countermeasures against OPEC.
OPEC+ organizes production cuts of 2 million barrels per day
To stabilize international oil prices by cutting production, the reason given by OPEC+ is that the current weak global economic growth and interest rate hikes by major central banks bring risks of oil market collapse. Oil-producing countries must actively respond to ensure the stability of the crude oil market.
This is the first face-to-face offline meeting held by OPEC+ in Vienna in more than two years. In addition, the OPEC+ organization also decided to adjust the Ministerial Production Monitoring Meeting (JMMC) originally scheduled to be held monthly to once every two months; in accordance with OPEC’s regular meeting schedule, the OPEC+ Ministerial Meeting will be adjusted to be held every six months.
OPEC+ said in a statement after the meeting that it had given the JMMC the authority to convene additional meetings to respond to possible changes in the global market. The next OPEC+ ministerial meeting will be held on December 4.
News that OPEC+ is about to significantly reduce production has been fermenting in the market a few days ago, driving international oil prices to rise for three consecutive days.
In the three days from October 3rd to 5th, the price of WTI crude oil futures rose from US$79.49/barrel to US$87.76/barrel, a cumulative increase of 10.4%; the price of Brent crude oil futures rose from US$87.96/barrel to US$93.37/barrel. barrels, with a cumulative increase of 6.2%.
S&P Global Platts pointed out that the actual crude oil production of many members of the OPEC+ organization, including Russia, is already far below the quota requirements. Therefore, the final actual production reduction of the OPEC+ organization will be significantly less than 2 million barrels per day, and is expected to be About 800,000 barrels per day, most of which is borne by the United Arab Emirates and Saudi Arabia.
Saudi Arabia’s Energy Minister Prince Abdulaziz said after the meeting that the actual production reduction will be between 1 million and 1.1 million barrels per day.
Despite this, this production reduction is also the largest production reduction measure launched by OPEC+ since May 2020. In the first half of 2020, the COVID-19 epidemic impacted the global economy, causing severe oversupply in the crude oil market and a historic collapse in international oil prices. In order to stabilize the global market, OPEC+ reached an agreement on the largest production reduction in history of 9.7 million barrels per day in April of that year.
Since then, with the rebalancing of the global crude oil market and the recovery of oil prices, OPEC+ has also continued to increase the production levels of member countries. Since the second half of this year, major central banks around the world have continued to raise interest rates, economic growth prospects are poor, and international oil prices have fallen significantly. OPEC+ has once again picked up the tool of production reduction in an attempt to stabilize excessively falling oil prices.
Differences between Saudi Arabia and the United States intensify
As a traditional ally of the United States, Saudi Arabia’s differences with the United States are intensifying in terms of its attitude towards the crude oil market.
OPEC+ stated that due to the weak global economic growth and the interest rate hikes by major central banks, in order to avoid a recurrence of the 2008 crash in the crude oil market, proactive measures must be taken in advance.
But the move triggered strong opposition and criticism from the United States. Recently, the Biden administration is facing pressure from the mid-term elections. In the past few months, it has been lobbying oil-producing countries to increase production and cool down the continued high oil prices.
According to media reports, in an interview after the meeting, Saudi Arabia’s Energy Minister Abdul Aziz refuted the argument that production cuts would harm the interests of consumers. He believed that stabilizing oil prices was intended to encourage capital to make long-term investment in oil production.
Other OPEC+ officials pointed out that the alliance of oil-producing countries is providing security and stability to energy markets, and that prices are a necessary price. From the perspective of OPEC+, the prices of major energy products around the world have risen sharply this year, but crude oil prices have remained relatively stable overall this year.
In a statement released on the White House official website on October 5, the United States accused OPEC+ of being short-sighted in reducing production. The White House stated that the global economy is currently actively coping with the negative impact of geopolitical conflicts in Eastern Europe. It is crucial to maintain the balance of global energy supply. However, the decision by OPEC+ to reduce production will have an adverse impact on low- and middle-income countries, which have previously have been hit by high energy prices.
In November, the U.S. government will release another 10 million barrels of crude oil reserves into the market to cool down the crude oil market. Going forward, the U.S. government will continue to release crude oil reserves as appropriate and explore all possible measures to promote the growth of U.S. domestic oil and gas production.
In July this year, U.S. President Biden flew to the Middle East in an attempt to lobby Saudi Arabia, the United Arab Emirates and other countries to increase crude oil production and cool down the continued high oil prices. However, OPEC+ ultimately only increased production by 100,000 barrels per day in September, with little effect. This week, the United States continued to lobby oil-producing countries, but to no avail.
The White House said the Biden administration is consulting with Congress on other possible ways and tools to reduce the�OPEC controls energy prices. The United States may revive the “NOPEC” bill, which would allow U.S. courts to sue OPEC for antitrust violations.
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