On October 5, OPEC+ decided to reduce oil production by two million barrels per day (b/d). OPEC lowered its 2022 global oil demand growth forecast for the fourth time since April, as well as its forecast for next year.
The demand for oil will increase by 2.64 million b/d – 2.7% – in 2022, according to OPEC in a monthly report, a drop of 460,000 b/d from the previous forecast. This 2 million b/d production cut is based on existing base numbers, which means that the cutbacks will be lower since OPEC+ fell about 3.6 million b/d below its production target in August.
The underproduction is due to sanctions on countries like Venezuela, Iran and Russia, and production problems in Nigeria and Angola. The Saudi energy minister said the actual cutbacks would be 1.0-1.1 million b/d. Analysts at Jefferies estimate the figure to be around 0.9 million b/d, while Goldman Sachs puts it at 0.4-0.6 million b/d, with the cutbacks coming mainly from Gulf producers.
Although the OPEC decision was made unanimously, Biden threatened that there would be consequences for Saudi Arabia for this “short-sighted” decision and “collusion” with Russia. He instructed his administration to consider measures to curtail OPEC’s control of energy prices, thus contributing to the fear of OPEC countries, and also voiced by some analysts, that the planned price cap on Russian energy products could be similarly used on other oil-producing countries.
Saudi Arabia said this cut was necessary in the face of a weakened global economy, citing slowing economies, the continuing zero-covid policy in China, and high inflation. It rejected criticism that it was colluding with Russia.
In response to Saudi Arabia’s claims that the West often gets carried away by the “arrogance of wealth” when criticizing the cartel, Biden counterargued that only lower oil prices would curb Russian revenue. However, low oil prices impact all other oil-producing countries, and not just Russia. Of course, it doesn’t help to have soaring fuel prices in the US during the midterm elections…
As one Eurasia Group analyst explained, “this is not the Saudi Arabia of the past, and the U.S. may have been a little slow or reluctant to recognize that on energy issues.” American administrations have a hard time accepting that the world has changed; in the multipolar world we live in, mid-sized powers like Saudi Arabia (and other OPEC+ countries) make decisions in line with their interests. And a superpower like the US, no matter how powerful, will only have its interests considered if they negotiate, which is far from the US’s stance. Anyway, in this specific case, the countries who will suffer the most from soaring oil prices will be the European (in the US, fuel is about half the price and gas is one third of the price in the EU). Moreover, for geopolitical reasons, the US and Saudi Arabia are bound to work together. But it is foolish to forget that the war in Ukraine is as remote to the Gulf elites as the wars in Yemen or Afghanistan are to the Europeans’.