FRANKFURT, Germany (AP) — The OPEC+ alliance of oil exporting countries on Wednesday decided to cut output sharply to support falling oil prices, a move that could deal another blow to the struggling global economy and raise the price of a politically sensitive pump for US drivers just before a major national election.
Energy ministers meeting at the OPEC oil cartel’s Vienna headquarters cut output by 2 million barrels per day from November in their first face-to-face meeting since the start of the COVID-19 pandemic.
In addition to token cuts in oil production last month, the massive cuts are a sudden turnaround from months of recovering deep cuts made during the depths of the pandemic and could help alliance members Russia overcome a looming European oil import ban.
In a statement, OPEC+ said the decision was based on “the uncertainty surrounding the global economy and the outlook for the oil market.”
The impact of production cuts on oil prices – and thus the price of gasoline made from crude oil – will be somewhat limited as OPEC+ members are no longer able to meet quotas set by the group.
The alliance also said it was renewing its cooperation between OPEC cartel members and non-members, the most significant of which was Russia. The deal will expire at the end of the year.
The decision came as oil traded well below its summer peak on concerns that major global economies such as the US or Europe would sink into recession due to high inflation, rising interest rates meant to curb rising consumer prices and uncertainty over Russia’s war against Ukraine.
The drop in oil prices has been a boon for US drivers, who saw gasoline prices lower at the pump before costs recently started to rise, and for US President Joe Biden as his Democrats prepare for congressional elections next month.
White House press secretary Karine Jean-Pierre told reporters Tuesday that the US would not extend the release of its strategic stockpile to boost global supplies.
Biden has been trying to take credit for gasoline prices that have fallen from the average June peak of $5.02 — with administration officials highlighting the late March announcement that one million barrels per day would be released from strategic reserves over six months. High inflation is a fundamental obstacle to Biden’s approval and has reduced Democrats’ chances in the midterm elections.
Oil supplies could face further reductions in the coming months when a European ban on most Russian imports takes effect in December. A separate move by the US and other members of the rich G7 nations to impose price caps on Russian oil could reduce supply if Russia retaliates by refusing to ship to countries and companies that comply with the limits.
The European Union on Wednesday approved new sanctions that are expected to include curbs on Russian oil prices.
Russia “needs to find new buyers for its oil when the EU embargo takes effect in early December and may have to make further price concessions to do so,” analysts at Commerzbank wrote in a note. “Previously higher prices – driven by production cuts elsewhere – would therefore certainly be very welcome.”
The diminishing prospects of a diplomatic deal to curb Iran’s nuclear program have also lowered the prospect of returning as much as 1.5 million barrels per day of Iranian oil to the market if sanctions are removed.
Oil prices surged this summer as markets worried about the loss of Russian supplies from sanctions over the war in Ukraine, but they slipped as concerns about a recession in the major economy and China’s COVID-19 curbs weighed on demand for crude.
International benchmark Brent has slumped as low as $84 in recent days after spending most of the summer months above $100 a barrel.
At its last meeting in September, OPEC+ reduced the amount of oil it produces by 100,000 barrels per day in October. The token cut did little to push oil prices lower, but did make the market notice that the group was willing to act if prices continued to fall.
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