OPEC+ Production Cut Followed Biden Admin Refusal to Refill Strategic Petroleum Reserve

Biden gas prices
AP Photo/Susan Walsh, Mario Tama/Getty Images
Frances Martel

The surprise decision on Monday by the oil cartel OPEC+ to dramatically cut crude production preceded indications from the administration of leftist President Joe Biden in late March that it was not interested in imminently refilling supplies depleted out of America’s Strategic Petroleum Reserves (SPR).

The American SPR, established to ensure that the country has sufficient fuel in the event of war or other calamities, lost 40 percent of its supply last year as Biden frantically emptied it, seeking to lower gasoline and diesel prices rising rapidly as a result of sanctions on Russian oil and diminished international supply. The level of reserve in the SPR is believed to have reached 1984 levels by October. The timing of the decision to release the SPR’s supply – in October, a month before America’s nationwide midterm elections – led many to condemn Biden for endangering national security in an apparent attempt to improve the political climate for Democrats.

International oil prices dropped following the release of the reserves. In the past month, the Biden administration has also approved new leases in Alaska and the Gulf of Mexico for drilling, potentially increasing international supply – and suppressing the price of oil – once those projects become active. Washington has not taken advantage of the lower oil prices in place prior to OPEC+’s decision on Monday to buy more supplies for the SPR, contrary to international expectations, which eliminated expected demand in the world market and, some analysts say, may have prompted OPEC+ to act.

OPEC+ is an extension of OPEC – the Organization of Petroleum-Exporting Countries – that includes Russia and several other major oil producers not formally part of the original cartel. On Monday, the group issued a statement announcing that it would collectively cut its production by 1.16 million barrels per day (bpd). Saudi Arabia, widely considered the most influential member, would cut its supply by 500,000 barrels per day; Russia would extend a 500,000-bpd cut already in place. The United Arab Emirates, Kazakhstan, Kuwait, and Iraq also announced significant reductions in oil production. The cuts are expected to remain in vigor through 2023.

The Saudi government said through an unnamed energy official that the production cut was a necessary “precautionary measure” in the face of a potential disruption in market “stability,” though he described the move as “voluntary.” The Kremlin simply stated the cuts were in the “interest of global energy markets.”

The 1.16 million bpd removed from the market are in addition to a record 2 million bpd cut in October, which prompted an outraged White House to accuse Saudi Arabia of attempting to aid Russia in its ongoing invasion of Ukraine. Riyadh responded with an outraged statement condemning the Biden administration for “attempts to distort the facts about the Kingdom’s position regarding the crisis in Ukraine.” Ukrainian President Volodymyr Zelensky issued a public statement thanking the Saudi government for its loyal support to his cause, adding further embarrassment for Biden.

The Biden administration responded less forcefully to the cuts on Monday. White House National Security Council Coordinator for Strategic Communications John Kirby told reporters that Washington received a “heads up” and that it disagreed with the statement, but did not elaborate or attack the parties involved.

“I would just say that I can’t even begin to speculate why this decision was made,” Kirby added.

One potential reason floated this week was the apparent lack of interest by the White House in replacing what was depleted out of the SPR. Speaking at a House of Representatives budget hearing on March 23, Jennifer Granholm said that the Biden administration would likely not take advantage of lower oil prices to buy up oil for the SPR.

“This year it will be difficult for us to take advantage of this low price,” Granholm said. “But we will continue to look for that low price into the future because we intend to save the taxpayer dollars.”

Granholm said it would take “years” to undo the damage that Biden had done to the SPR.

The immediate result of Granholm’s comments at the time was a drop in oil prices that may have prompted OPEC+ to act before prices fell further.

The Financial Times claimed that the Biden White House had indeed irritated OPEC+, and Saudi Arabia in particular, with its refusal to buy more oil, though the report was poorly sourced, citing only “people familiar with Saudi Arabia’s thinking.”

“People familiar with Saudi Arabia’s thinking say Riyadh was irritated last week that the Biden administration publicly ruled out new crude purchases to replenish a strategic stockpile that had been drained last year as the White House battled to tame inflation,” the magazine speculated, noting that Biden had “previously offered reassurance to Saudi Arabia that it would step in to make purchases for its strategic reserve if prices fell.”

The Financial Times noted that OPEC+ announced its production cuts without a formal meeting of its members, an “unusual” move that suggested “urgency” on the part of cartel leaders.

Writing at Forbes, Christopher Helman reached the same conclusion that the refusal to refill the SPR made OPEC, and Saudi leaders in particular, “exasperated at Biden.”

“Last year the Biden Administration said it intended to halt its historic emergency sales of oil from the Strategic Petroleum Reserve, and it would start refilling the 180 million barrels when prices fell to the lower $70s,” Helman observed. “Yet even as oil fell into the $60s recently, the administration refused to move. OPEC wanted to see big buyers step up.”

Helman noted that a Goldman Sachs analysis also suggested that the SPR situation contributed to the oil production cut.

Just as the United States had expressed displeasure with OPEC+’s giant production cut in October, so too had Saudi officials condemned Biden’s moves to empty the SPR.

“People are depleting their emergency stocks, had depleted it, used it as a mechanism to manipulate markets while its profound purpose was to mitigate shortage of supply,” Saudi Energy Minister Prince Abdulaziz bin Salman said in October. “However, it is my profound duty to make it clear to the world that losing emergency stock may become painful in the months to come.”

While Prince Abdulaziz did not elaborate – or even specify the remarks were about America – he did in the same public appearance complain that Western powers’ pressure to oppose Russia hurt the Saudi government’s ability to act in its own interests.

“We keep hearing you ‘are with us or against us,’ is there any room for ‘we are with the people of Saudi Arabia’?” he asked.

COMMENTS

Please let us know if you're having issues with commenting.