OPEC+ cuts oil production by 2 million barrels per day Biden fails diplomacy, Russia and Ukraine lose energy war

The 23 OPEC+ countries, led by Saudi Arabia and Russia, held their first face-to-face summit since 3, 2020 at their Vienna headquarters on Wednesday (October 5) and decided to cut oil production by 2 million barrels per day, equivalent to 2% of global daily output.

While OPEC+ members have packaged production cuts as a response to pressured global economic growth, Goldman Sachs said OPEC+ had never cut production in such a tight market.

U.S. President Joe Biden, who went to Saudi Arabia to plead guilty to Crown Prince Mohammed bin Salman in July for oil, can only keep his anger low-key at the moment.

White House spokeswoman Karine Jean-Pierre clearly characterized the actions of Saudi Arabia and other countries as "choosing sides" regarding OPEC+'s decision to cut production: "With today's announcement, it is clear that OPEC+ is siding with Russia."

The White House has repeatedly lobbied Saudi Arabia and other countries when OPEC+ reported production cuts.

But judging from the scale of its 2 million barrels per day production cut, Biden's diplomatic lobbying has failed completely.

Moreover, the production cut and higher oil prices not only indirectly support Russia's energy export revenue that can be used for war, but also clearly intend to drag down the Democratic Party's campaign as the US mid-term elections approach in November - Mohammad and Trump The family has close ties, and the private equity fund of the latter's son-in-law Jared Kushner received a $2 billion injection from the crown prince's fund after Trump stepped down.

An attack on Biden personally?

This OPEC+ action involves not only geopolitics related to the Russia-Ukraine war, but also a personal attack by the Saudi crown prince himself on Biden, who once claimed to turn Saudi Arabia into a "pariah".

According to the "New York Times" report, when Biden visited Saudi Arabia in July, he reached a behind-the-scenes consensus with Arab countries to increase Saudi production by 750,000 barrels a day and the United Arab Emirates by 500,000 barrels a day.

But Saudi Arabia "returned to the status quo" after slightly increasing production in August, and is now pushing for more production cuts, apparently ignoring the Biden administration.

U.S. President Joe Biden arrives in the Red Sea city of Jeddah, Saudi Arabia, on July 15.

The picture shows him bumping fists with Saudi Crown Prince Mohammed at the Salam Palace.

(AP)

And Biden really does not have any tools to exert pressure on Saudi Arabia at this moment.

On the one hand, the U.S. Strategic Petroleum Reserve is at an all-time low after months of release.

Although Biden changed his original plan not to release further reserves after the October 21 expiry after the OPEC+ production cut decision was announced, he said that he would release another 10 million barrels in November, but this was probably only used to lower oil prices to After the mid-term elections, it will not affect the ability of Saudi Arabia and OPEC+ countries to control oil prices.

On the other hand, as the relationship between Israel and Saudi Arabia warms up, and the United States will continue to hamper Iran anyway out of its own interests, whether or not Saudi Arabia compromises with the United States will not bring much benefit.

After OPEC+ announced production cuts, White House National Security Adviser Jake Sullivan and Economic Adviser Brian Deese issued a statement expressing their disappointment with the production cuts and threatening to consult with Congress to seek more tools and powers to reduce OPEC's involvement in production cuts. Control of energy prices.

The “tool” here refers to the No Oil Producing and Exporting Cartels Act (No Oil Producing and Exporting Cartels Act), which was passed by the Senate Committee in May this year. The Justice Department sued with antitrust laws.

However, under the opposition pressure of various political and business circles, the "NOPEC Act" has a low chance of being passed in the short term, and its deterrent power itself is also questionable.

Brent crude oil price trend this year.

(Trading Economics)

Political rift between the Western camp and oil-producing countries

Brent crude prices have been falling in recent months, from around $120 a barrel in June to just above $80 in late September.

Oil prices have recovered to around $93 a barrel as news of production cuts has gone viral in recent days.

Although OPEC+'s oil production target will be lowered from 43.8 million barrels per day to 41.8 million barrels per day, due to the long-term failure of some countries in the organization to meet the oil production target this year, the daily output may be lower than the target by as much as 3 million barrels. Therefore, its impact on real oil production will be well below the 2 million barrels per day level.

OPEC+ representatives said the impact would probably be at the level of 600,000 barrels per day, while other estimates put production cuts at 1 million barrels per day.

Even so, implementing production cuts as Europe is entering winter is undoubtedly a boost to Russia's energy war against the EU.

This decision of Saudi Arabia and other countries is probably not a comprehensive stand in the camp division of the Russian-Ukrainian war, but it highlights an international political rift drawn from this energy war.

In the face of Russia's continued use of energy exports to earn income to support the war, Western countries represented by the United States, G7, and the European Union are planning to impose price caps on Russian oil, hoping to prevent them through the control of European countries in the oil transportation and shipping insurance industries. Any Russian oil exports above the price ceiling.

At present, the G7 has agreed to introduce price limit measures, and EU countries have also reached a consensus on this recently, hoping to set implementation details and specific price ceilings before the implementation of the EU's embargo on Russian seaborne oil on December 5.

These price-limiting actions have raised concerns of "death and cold" among oil-producing countries such as Saudi Arabia.

Although the price cap has not been followed by other countries such as China and India, and its effectiveness is unknown, but if this mechanism gradually matures through actual implementation, it will reverse the current oligopoly of the supply side of the international energy market and turn it into a kind of Pricing struggle between "seller oligopoly" and "buyer monopoly".

At the moment, its target may be limited to Russia, but in the future, it is impossible to guarantee that it will not be implemented on other oil-producing countries (just imagine another Saudi journalist killed), or even used by countries outside the Western camp.

OPEC's headquarters in Vienna, Austria.

(AP)

This constitutes a political rift between the Western bloc and non-Western oil producers at the moment that is difficult to mend — especially at a time when a group of Arab countries are looking to capitalize on high oil prices to boost government investment.

Even if Western countries have nothing to do with OPEC+ at the moment, if OPEC+ oil-producing countries resolutely disregard the interests of energy importing countries and raise energy prices for a long time, it may not be a good thing for them.

On the one hand, when oil prices are high, oil-producing countries other than OPEC+ are expected to increase production to seize market share.

On the other hand, high oil prices will also lead energy importing countries to invest more resources in the development of renewable energy or nuclear energy, and promote the development of energy efficiency, which will make the "post-oil era" come earlier.

The combined effect of these two factors will make it more difficult for OPEC+ countries to maximize their available income from oil production before the arrival of the "post-oil era", and to make arrangements for the "post-oil era".

Of course, this is a long-term plan in ten years.

In the energy war caused by the Russian-Ukrainian war at this moment, when Saudi Arabia and other countries indirectly support Russia, Europe and the United States will inevitably be at a disadvantage.

OPEC+ agrees to cut production sharply. Biden criticizes shortsightedness and instructs the Ministry of Energy to release strategic oil reserves. OPEC+ implements production cuts of 2 million barrels, the largest epidemic since the United States condemns concessions to Russia.

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