This is how the production cut agreed by OPEC can affect the price of gasoline

By David McHugh

The Organization of Petroleum Exporting Countries and Russia (OPEC+) announced on Wednesday a drastic cut in crude oil production to stop the fall in prices, a measure that can deal a new blow to the battered world economy and raise oil prices. gasoline in the United States just over a month before the midterm elections.

The energy ministers of the OPEC+ countries decided to cut production by

after meeting for the first time at OPEC headquarters in Austria since the start of the COVID-19 pandemic.

The decision was based on "uncertainty surrounding the outlook for the global economy and the oil market."

Saudi Energy Minister Abdulaziz bin Salman stressed: "We are here to be a moderating force, to bring stability."

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After a symbolic reduction in September, this cut in crude oil is the most relevant since the COVID-19 pandemic and the economic crisis that it generated.

Global energy prices have swung wildly since Russia invaded Ukraine in February, helping to fuel inflation across the globe.

The decision may thus help Russia weather the impending European ban on most of its crude.

But its impact on crude oil prices around the world will be somewhat limited because OPEC+ members can no longer meet their quotas.

Oil is trading well below its summer highs on fears that the world's major economies are sinking into recession due to high inflation, rising interest rates and uncertainty over a Russian invasion of Ukraine.

The price of gasoline continues to drop.

The national average is $4.35 per gallon.

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“We are going through a period of uncertainties, it is a cloud that is brewing,” Bin Salman said, adding that OPEC+ sought to stay “ahead” of what may happen.

The drop in oil prices has been a boon to drivers in the US, who have finally seen gas prices drop at the pump, and to President Joe Biden as his Democratic party prepares for congressional elections.

"The President is disappointed by OPEC+'s short-sighted decision to cut production quotas as the world economy grapples with the continuing negative impact of Putin's invasion of Ukraine," the White House said in a statement.

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"At a time when maintaining the world's energy supply is of paramount importance, this decision will have the most negative impact on low- and middle-income countries that are already reeling from high energy prices," he added.

Biden has taken credit for driving gasoline prices down from their mid-June peak of $5, with the White House highlighting the late-March announcement that he would release a million barrels a day from the strategic reserve for six months. .

This Wednesday the Banking House announced the release of 10 million barrels from the strategic reserve in November.

Oil supply could see further cuts in the coming months, when a European ban on most Russian imports takes effect in December.

Another move by the United States and other members of the Group of Seven richest countries to impose a price cap on Russian oil could reduce supply if Russia retaliates by refusing to ship to countries and companies.

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The EU on Wednesday agreed to new sanctions that are expected to include a price cap on Russian oil.

Russia "will need to find new buyers for its oil when the embargo comes into force in early December and will presumably have to make further price concessions for it," analysts at Commerzbank said.

"A higher price, driven by production cuts elsewhere, would therefore be very welcome."

Fading prospects for a diplomatic deal to limit Iran's nuclear program have also dimmed prospects for a return of up to 1.5 million barrels a day of Iranian oil to the market if sanctions are lifted.

Oil prices rose this summer as markets worried about the loss of Russian supplies due to Ukraine war sanctions, but fell as recession fears in major economies and COVID-19 restrictions China weighed in on demand.

International benchmark Brent crude has fallen as low as $84 in recent days, after spending most of the summer months above $100 a barrel.

US crude rose to $87.64 and international benchmark Brent rose to $93.21 after the decision.

At its last meeting in September, OPEC+ cut the amount of oil it produces by 100,000 barrels a day in October.

That token cut didn't contribute much to lower oil prices, but it did put markets on notice that the group was ready to act if prices continued to fall.