A panel of energy ministers of the OPEC+ alliance of oil-exporting countries on Wednesday agreed to recommend a historically large cut in output, a stinging rebuke to the Biden administration that is likely to mean higher prices at gas pumps in the United States and Europe.
The alliance, which is led by Saudi Arabia and includes Russia, is meeting in Vienna to negotiate the largest production cut since the pandemic first struck. The energy ministers who comprise the cartel’s Joint Ministerial Monitoring Committee recommended a cut of two million barrels per day in the group’s overall production. A final decision will be voted on later on Wednesday.
The Biden administration has reportedly been attempting to persuade the Saudis not to support a production cut. The administration fears higher prices will aid Russia, hurt U.S. allies in Europe, and be a blow U.S. consumers ahead of the midterm election.
Although the ministers agreed to reccomend a two million reduction to the total quotas, actual production is likely to fall by only half of that. Many of OPEC’s members have not been producing their full quota due to inadequate production infrastructure. Globally, fossil fuel production has been starved of investment for years thanks to a history of financial losses and climate change policies and investment strategies.
A central reason for the production cut is reduced demand. China’s zero covid lock down policies have hurt demand in Asia. Slumping economies in Europe and the developing world are also expected to see oil demand contract, although this is somewhat offset in Europe by an inadequate supply of natural gas following the destruction of pipelines from Russia. U.S. demand has also been lower than expected.
The Biden administration has been releasing huge volumes oil from the U.S. Strategic Petroleum Reserve to dampen global prices. These releases were scheduled to end in October but that is now in doubt in light of the OPEC+ cuts.