Despite US Pressure, OPEC+ Cuts Production, Oil Prices Surge... White House Criticizes Cooperation with Russia

[Asia Economy New York=Special Correspondent Joselgina] Despite overt pressure from the United States, oil-producing countries including Russia and Saudi Arabia have ultimately agreed to cut crude oil production. Starting in November, they agreed to reduce production by 2 million barrels per day, approximately 2% of the world's daily oil supply, making negative impacts on the global economy inevitable. Oil prices surged immediately, raising concerns about prolonged high inflation. The White House strongly criticized OPEC+ for cooperating with Russia, which invaded Ukraine.

◆OPEC+ Agrees to Cut 2 Million Barrels per Day...WTI Closes at $87.76

The Organization of the Petroleum Exporting Countries (OPEC) and the coalition of major non-OPEC oil producers including Russia, known as 'OPEC Plus' (OPEC+), announced on the 5th (local time) at a regular meeting held at OPEC headquarters in Vienna, Austria, that they agreed to cut production by 2 million barrels per day starting next month. This is the largest production cut since March 2020, when the COVID-19 pandemic first spread.

This production cut decision is interpreted as a response to recent growing concerns about economic recession and anxiety over falling oil prices. As the dollar surged and oil prices declined, coupled with decreasing oil demand, they took measures to reduce supply. OPEC+ explained that the scale of the cut was due to increased market uncertainty. This meeting was the first in-person meeting since the COVID-19 outbreak in 2020. The next meeting is scheduled for December 4.

International oil prices immediately jumped. On the same day at the New York Mercantile Exchange, the November West Texas Intermediate (WTI) crude oil price closed at $87.76 per barrel, up $1.24 (1.43%) from the previous day. This is the highest closing price since September 14 and marks the third consecutive day of gains. The increase during this period exceeds 10%.

Some even suggest the possibility of oil prices surpassing $100 again. International oil prices had surged past $120 per barrel in early June due to the impact of Russia's invasion of Ukraine, but have since fallen to the $80 range amid growing recession fears. Caroline Bain, a commodities economist at Capital Economics (CE), said, "OPEC+ producers are producing well below their quotas, so actual supply is likely much lower." Investment bank Goldman Sachs forecasted Brent crude prices to fluctuate around $105 per barrel over the next six months.

◆US Pressure Fails...Biden "Disappointed by Shortsighted Decision"

The United States immediately reacted against OPEC+'s decision. The White House issued a statement signed by National Security Advisor Jake Sullivan and National Economic Council (NEC) Chair Brian Deese, saying, "The President is disappointed by OPEC+'s shortsighted production cut decision, which comes as the global economy is responding to the negative impacts caused by Putin's invasion of Ukraine." They added, "Maintaining international energy supply is the most important task at this time," and expressed concern that "this decision will have the most negative impact on low- and middle-income countries suffering from high energy prices."

In response to OPEC+'s production cut, President Joe Biden has ordered an additional release of 10 million barrels from the Strategic Petroleum Reserve in November and is also reviewing additional measures to increase domestic energy production in the short term. He has requested refiners to lower product prices and reduce margins, and plans to work with the US Congress to discuss measures to reduce OPEC's influence on energy prices. Measures such as banning gasoline exports and price caps are also reportedly under consideration.

This production cut agreement is particularly notable as it was reached despite overt US opposition and pressure. The Biden administration reportedly pressured oil-producing countries through various channels to prevent the cut ahead of this regular meeting. Economic media CNBC cited sources saying the Biden administration made every effort to persuade oil producers to oppose the cuts. CNN also obtained an internal White House report stating, "The White House defined the production cuts by Russia and Saudi Arabia as a disaster and mobilized all lobbying power."

With the midterm elections just over a month away, President Biden, who has been focusing on stabilizing inflation, faces a negative impact if oil prices fluctuate due to the production cuts by oil-producing countries. Issues such as gasoline prices and inflation are considered favorable cards for the Republican Party, which emphasizes economic judgment.

Moreover, Saudi Arabia, which President Biden visited setting aside his stance on human rights issues under the pretext of stabilizing oil prices, has aligned with Russia, damaging his credibility. After his visit to Saudi Arabia in July, President Biden mentioned, "I am looking forward to what will happen in the coming months," but instead, OPEC+ has continued to decide on production cuts.

Accordingly, local US media interpret that Saudi Arabia is cooperating with Russia to push for large-scale production cuts. This indicates that the close market response between Saudi Arabia and Russia, which began as the US increased shale gas production, continues. The sudden holding of the OPEC+ in-person meeting, originally expected to be held next year, is also seen as subtle. Analysts suggest that as the oil price cap, part of the US and Western sanctions on Russia, became concrete, it pressured oil-producing countries, leading to retaliatory production cuts.

White House spokesperson Karine Jean-Pierre strongly criticized, saying on a plane to Florida, "Today's announcement makes it clear that OPEC+ is cooperating with Russia."