Oil cartel OPEC and its allies (OPEC+) are going to sharply cut oil production to prop up prices. According to delegates at the OPEC meeting, production will be cut by 2 million barrels daily.
Oil prices have fallen sharply recently due to market concerns about an economic recession caused by sharp interest rate hikes by central banks. This could hit oil demand. Earlier this year, prices actually went up sharply, mainly due to the war in Ukraine and concerns about disruptions to Russian oil supplies. That caused record prices at the pump.
To drive down fuel prices, International Energy Agency (IEA) countries released strategic oil stocks and OPEC leader Saudi Arabia, among others, was asked by the United States to increase production more sharply.
In the commodities market, OPEC's decision to cut production caused little stir. According to experts, the production cut seems already priced in. A barrel of U.S. oil was 0.2 percent cheaper at $86.34 by 4:30 p.m. ET. Brent oil, the benchmark for oil from Europe, the Middle East and Africa, was a fraction more expensive at $91.85 a barrel.
Kuwait's oil minister said Tuesday ahead of the meeting of OPEC+'s 23 members that the oil alliance looks at the market before deciding on production. He stated that the interests of both producers and consumers are considered. The countries make agreements on how much oil each country can pump in order to influence prices. Incidentally, not all members can meet production quotas.
Punishment for Europe
Russia in particular would push for a major cut in production. Moscow could thus push energy prices in Europe, escalating the energy crisis. In this way, the Kremlin is punishing Europe for supporting Ukraine in its war with Russia. Russian Deputy Prime Minister and former oil minister Alexander Novak is reportedly going to the OPEC+ meeting.
The U.S. government urged countries in the oil alliance OPEC+ not to press ahead with an expected major cut in oil production. White House sources reported this to Reuters news agency. President Joe Biden's administration was said to be concerned that this would cause fuel prices at the pump to rise again.
The White House fears the production cut would lead to higher fuel prices for motorists. Washington argues that economic fundamentals are not strong enough now to support a production cut, insiders told Reuters. Moreover, high fuel costs undermine Biden's popularity with American voters.