One of the world’s most powerful groups of oil producers is the Organization of the Petroleum Exporting Countries, known as OPEC+. The organization has decided to impose drastic output cutbacks on oil production as a way to boost oil prices, despite pleas from the United States to pump more oil. On Wednesday, OPEC+ made the final decision to cut oil production by 2 million barrels per day starting in November.
The production cut is planned to start in November, with the intention of increasing the fallen prices of oil barrels. About a month ago, OPEC+ brought about concerns regarding the crude market and decided to cut oil production by only 100,000 barrels. After seeing oil prices decrease from $120 per barrel in June to now $80 per barrel, the organization decided to increase the production cut to 2 million barrels to minimize the impact of these lower costs on producers. The U.S. is continuing to put pressure on OPEC+ nations to pump out more oil, especially due to the upcoming midterm elections. Joe Biden’s administration has repeatedly requested mass outputs of oil to lower fuel prices as a strategy to combat the already struggling economy. This decision has also encouraged the Biden administration and the European Union to promote the idea of capping prices on Russian oil. This would both minimize the cost of this resource while still keeping prices above the cost of production.
According to Biden’s administration, the U.S. President was “disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine.” The statement released by the White House also included instructions for the Department of Energy, from Biden, to release an additional 10 million barrels from the Strategic Petroleum Reserve next month. The statement added that the OPEC+ declaration was “a reminder of why it is so critical that the United States reduce its reliance on foreign sources of fossil fuels.”
Since the meeting on Wednesday, OPEC+ nations have seemed to reach a desired result. The price of Brent crude oil, which has significantly fallen in price this past summer, rose to more than 1.5% after the meeting, bringing prices back up to numbers seen last fall. Energy analysts are reporting that the real impact of the organization's oil production cuts for November is expected to be limited, with unilateral reductions coming only from Saudi Arabia, the UAE, Iraq, and Kuwait. They also added that it may be a challenge for OPEC+ nations to establish an outlook of more than one to two months in the future due to the uncertainties of additional European sanctions on non-OPEC producer Russia, including shipping insurance, price restrictions, and limited petroleum imports.
OPEC+ will have another meeting on December 4th to discuss the impact of the major production cut of oil. Tensions are already rising between opposing countries, but cutting production has proven to stabilize the market, as seen two years ago. Back in 2020, the output was reduced to about 10 million barrels per day as a result of the Covid-19 pandemic. The oil cartel has since reversed those record cuts, as multiple OPEC+ nations are finding it difficult to meet their quotas for oil barrels per day. This change in policy from 10 million to 2 million barrels is a sharp turn for the oil industry in these regions, and this impact is likely to spread far beyond OPEC+'s reach as countries adapt to this new regulation.