Opec+ agrees on deep cuts to oil production despite US pressure

VIENNA - Opec+ at a Vienna meeting on Wednesday agreed on its deepest cuts to oil production since the start of the Covid-19 pandemic in 2020, curbing supply in an already tight market despite pressure from the United States and others to pump more.

The cut could spur a recovery in oil prices that have dropped to about US$90 from US$120 three months ago on fears of a global economic recession, rising US interest rates and a stronger dollar.

The United States had pushed the Organisation of Petroleum Exporting Countries not to proceed with the cuts, arguing that the fundamentals do not support them, a source familiar with the matter said.

Opec's leading member is Saudi Arabia, while its allies in Opec+ include Russia.

US President Joe Biden is calling on his administration and Congress to explore ways to boost US energy production and reduce Opec's control over energy prices after the cartel's "short-sighted" production cut, the White House said on Wednesday.

Mr Biden will also continue to direct releases from the US' Strategic Petroleum Reserve as necessary, National Security Adviser Jake Sullivan and National Economic Council director Brian Deese said in a statement.

Citi analysts said in a note that "higher oil prices, if driven by sizeable production cuts, would likely irritate the Biden administration ahead of US midterm elections".

JPMorgan also said it expected Washington to put in place countermeasures by releasing more oil stocks.

Opec+ sources said the agreed production cuts of two million barrels per day (bpd), or 2 per cent of global demand, would be made from existing baseline figures. That means the cuts would be less deep because Opec+ fell about 3.6 million bpd short of its output target in August.

Under-production happened because of Western sanctions on countries such as Russia, Venezuela and Iran and output problems with producers such as Nigeria and Angola.

Goldman Sachs analysts said they estimated the real production cuts would therefore amount to 0.4 million bpd to 0.6 million bpd, mainly by Gulf Opec producers such as Saudi Arabia, Iraq, the United Arab Emirates and Kuwait.

Saudi Arabia and other members of Opec+ have said they are seeking to prevent volatility rather than to target a particular oil price.

Benchmark Brent crude traded flat at US$92 per barrel on Wednesday, after climbing on Tuesday.

The West has accused Russia of weaponising energy, creating a crisis in Europe that could trigger gas and power rationing this winter.

Moscow, meanwhile, accuses the West of weaponising the dollar and financial systems such as Swift in retaliation for Russia sending troops into Ukraine in February.

REUTERS