The reduction in oil production announced this Wednesday by the OPEC+ group corresponds to the biggest cut in supply since May 2020.
According to Reuters experts, the decision is likely to anger the administration of US President Joe Biden and prompt the US response. The note sent to Citi markets, which Reuters refers to, explains that the OPEC+ alliance, led by Saudi Arabia and Russia, decided, in Vienna, to reduce oil production by two million barrels per day, which corresponds to the biggest cut in oil supply since May 2020. The decision was announced to the press by Iran’s deputy oil minister, Amir Hossein Zamaninia, at the end of the ministerial conference of the Organization of Petroleum Exporting Countries (OPEC) and the ten allied producing nations, including Russia, Mexico and Kazakhstan.
The announced cut could trigger a recovery in oil prices, which in three months dropped from 120 dollars to the current 90 dollars per barrel due to fears about a global recession. As a result, the dollar appreciated and US interest rates also rose. The US has been pressuring OPEC not to go ahead with the cuts, arguing that the indicators do not support that decision, a source familiar with the dossier told Reuters.
Reuters sources note that it remains unclear whether the cuts could include additional voluntary reductions by alliance members such as Saudi Arabia or take account of the group’s current underproduction. OPEC+ missed its August production target of around 3.6 million barrels a day. “Higher oil prices, if the result of substantial production cuts, will, in all likelihood, irritate the Biden administration” who will soon face the U.S. midterm elections, Citi analysts say in a note released to markets. Thus, complements the same document, there may be additional political reactions from the US, “including the release of additional strategic stocks”.
