OPEC+ said on Wednesday it will cut oil production by 2 million barrels a day, the largest cut since the start of the pandemic, in a move that threatens to push gasoline prices up just weeks before the US midterm elections.
The group of major oil producers, including Saudi Arabia and Russia, announced the production cut after its first face-to-face meeting since March 2020. The cut equates to approximately 2% of global oil demand.
The price of Brent crude rose more than 1% to nearly $93 a barrel, according to the news, contributing to gains this week ahead of the oil ministers’ meeting. US oil rose 1.5% to $87.75.
President Joe Biden said on Wednesday that he was concerned about a major cut in oil production by OPEC+.
“I need to see what the detail is. I’m concerned, it’s not necessary,” he said in response to a question from CNN’s Arlette Saenz as he left the White House for Florida.
Production restrictions will start in November and the Organization of the Petroleum Exporting Countries (OPEC) and its allies will meet again in December.
In a statement, the group said the decision to cut production was taken “in light of the uncertainty surrounding the outlook for the global economy and the oil market”.
Global oil prices, which rose in the first half of the year, have since fallen sharply amid fears that a global recession will weigh on demand. Brent oil has fallen by 20% since the end of June. The global benchmark peaked at $139 a barrel in March following the Russian invasion of Ukraine.
OPEC and its allies, which control more than 40% of global oil production, hope to prevent a drop in demand for their barrels following a sharp economic slowdown in China, the United States and Europe.
Western sanctions against Russian oil are also clouding the waters. Russian production has held up better than forecast, with supplies being diverted to China and India. The United States and Europe are now working on ways to implement a G7 agreement to limit the price of Russian crude exports to third countries.
The oil cartel came under heavy pressure from the White House ahead of the Vienna meeting, as President Biden sought to push lower energy prices for American consumers. According to officials, senior officials in the Biden administration lobbied their counterparts in Kuwait, Saudi Arabia and the United Arab Emirates (UAE) to vote against cutting oil production.
The prospect of a production cut was labeled a “total disaster” on Monday in draft talking points circulated to the Treasury Department by the White House and obtained by CNN. “It’s important that everyone knows how high the stakes are,” said a US official.
With just a month to go before the crucial midterm elections, US gasoline prices have started to rise again, posing a political risk that the White House is desperately trying to avoid.
Rising oil prices could mean inflation will remain elevated for longer and increase pressure on the Federal Reserve to raise interest rates even more aggressively.
— Alex Marquardt, Natasha Bertrand, Phil Mattingly and Mark Thompson contributed to this report.