OPEC cuts oil production; US calls move 'short-sighted'
Oil prices rose on Thursday (October 6), after the world’s major oil producers agreed for a big cut in oil production to drive up prices, sending shock waves across the energy market.
Even as the global economy is dealing with the continued negative impact of Russia’s invasion of Ukraine, the Organisation of the Petroleum Exporting Countries (OPEC+), including Russia, have decided to slash oil output by 2 million barrels a day, which is equal to 2 per cent of the global supply.
According to a report in an international business daily, the price of Brent crude oil reached $93.96 a barrel, up from $84 a barrel last week, after OPEC’s big cut in oil production. And, experts believed this big cut to oil production will lead a barrel to cost $100 by Christmas.
Meanwhile, Saudi Arabia defended itself saying this big cut to oil production had become necessary to respond to rising interest rates and a weaker global economy. Saudi energy minister Prince Abdulaziz bin Salman denied the accusation made by the White House that it was colluding with Russia and that this oil production cut was an act of aggression.
Also read: As UAE and Saudi end row, OPEC+ to gradually increase oil supplies
US reacts to OPEC+ big cut in oil production
The US, said it was disappointed by the surprise decision and called it “short-sighted”. It accused Saudi Arabia of colluding with Russia and blocking efforts by US and Europe to reduce the revenue that Russia earns from the sale of its crude oil.
“The president is disappointed by the short-sighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of [Russian President Vladimir] Putin’s invasion of Ukraine,” the White House said in a statement.
US officials said that at a time when maintaining a global supply of energy is of paramount importance, this decision will have the most negative impact on lower-and middle-income countries that are already reeling from elevated energy prices.
The Biden administration has also said that it will consult with Congress on ways to “reduce OPEC’s control over energy prices”. According to media reports in the international press, the announcement suggested that the US administration may want to revive the so-called “Nopec” legislation, aimed at cracking down on oil cartels by allowing the Department of Justice to sue countries for anti-competitive behaviour.
Also read: Saudi Arabia seeks urgent OPEC+ meeting to stabilise oil market
Fallout of OPEC’s big cut
The big cut in OPEC Plus production will create upward pressure on oil prices which had fallen to about $90 per barrel from about $120 per barrel in early June. The move threatens further inflationary pressures in a world economy already burdened by an energy crisis, said news reports.
This move clearly shows that Saudi Arabia is moving closer to Russia and is ready to ignore the US’s overtures on this front.
This OPEC cut will also undermine the Group of Seven (G7) economically advanced countries efforts to implement a price cap on Russian oil, in order to curb Moscow’s oil revenues used to fund its continuing invasion of Ukraine. For a country like India, where price of oil is “breaking our back, and is a big concern”, as reiterated by external affairs minister S Jaishankar in Washington last week, this rise in oil prices will surely affect its “$2,000 per capita economy”.
