The OPEC+ coalition of oil-producing nations agreed Wednesday to cut daily oil production by 2 million barrels -- about 2% of global oil production -- in a rebuke to President Joe Biden expected to push up gas prices, worsen the risk of a global recession and bolster Russia's war in Ukraine.
Energy ministers approved the cut after gathering for their first face-to-face meeting at the Vienna headquarters of OPEC since the start of the covid-19 pandemic. The oil cartel said the decision was based on the "uncertainty that surrounds the global economic and oil market outlooks."
In August, OPEC+'s total daily crude oil supply reached 44.67 million barrels, up from 44.17 million barrels supplied in July. The coalition maintains a "sustainable capacity" -- production reachable within 90 days and sustainable for an extended period -- of nearly 50 million barrels a day, according to the September oil market report of the International Energy Agency.
Saudi Energy Minister Abdulaziz bin Salman stressed Wednesday that the OPEC+'s stated role is being a guardian of stable energy markets. "We are here to stay as a moderating force, to bring about stability," he told reporters.
But the move prompted a blistering reaction from White House officials who hinted at working with Congress to reduce the power of the oil cartel.
"The President is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of [Russian President Vladimir] Putin's invasion of Ukraine," National Security Adviser Jake Sullivan and National Economic Council Director Brian Deese said in a joint statement.
Aboard Air Force One, White House press secretary Karine Jean-Pierre told reporters: "It's clear that OPEC+ is aligning with Russia with today's announcement."
OPEC+, which includes Russia and is led by crude oil giant Saudi Arabia, said the cut in production would take effect in November. It marks the first time the coalition cut oil production targets since the beginning of the pandemic.
RAISING DEMAND, PRICES
Wednesday's move was more aggressive than most analysts had expected, even a few days ago, and reflects the oil producing nations' desire to react to the recent drop in global energy prices.
"The intention of the OPEC+ cut was to break the fall in crude prices since the summer," said Bob McNally, an energy analyst at the Rapidan Energy Group. "If they succeed, then gasoline pump prices should also stop falling and range around current levels, until other market drivers impact the price."
Oil is trading well below its summer peaks on fear that major global economies such as the U.S. or Europe will sink into recession because of high inflation, rising interest rates and energy uncertainty over the war in Ukraine.
The cut comes despite aggressive lobbying by the Biden administration for the consortium to continue production at its current levels or higher -- punctuated by Biden's July visit to Saudi Arabia.
Biden previously vowed to make Saudi Arabia an international pariah, but he re-engaged while trying to use all available channels to curb increases in the price of gas that had hurt his domestic approval ratings.
The president's efforts have been overshadowed by a recent steep drop in prices driven by a souring of the global economy, forcing demand to plunge.
OPEC+'s move is expected also add to inflationary pressures in the U.S. and Europe.
Russia relies on gas and oil sales for a large portion of its budget and had pushed for the production cut, which will enable Moscow to sell oil for higher prices on the global market, generating more revenue for its war and troop mobilization.
Oil prices jumped this week in anticipation of the OPEC+ cut. Prices are expected to increase further now, likely to over $100 per barrel. Brent, the international benchmark, has sagged as low as $84 per barrel in recent days after spending most of the summer months over $100 per barrel.
U.S. crude rose to $87.64, and Brent went up to $93.21 after the Wednesday decision.
Overall, it's unlikely that collective OPEC+ production will decrease by the full 2 million barrels a day as some coalition countries are not reaching their current quotas, said Claudio Galimberti, head of Americas analysis at Rystad Energy.
Part of the OPEC+ cut is "on paper" because members already can't supply enough oil to hit their allotments, said Gary Peach, oil markets analyst at energy information firm Energy Intelligence.
"Only about half of that is real barrels," Peach said of the cut.
The recent fall in oil prices has been a boon to U.S. drivers, who saw lower gasoline prices at the pump before costs recently started ticking up.
Gas prices remain likely to increase in the U.S., Galimberti said, perhaps by roughly 10% in much of the country, although the actual increase will depend on many factors.
DEFENSIVE MOVES, RESERVES
On Wednesday, the European Union advanced a U.S.-backed measure to impose a price cap on Russian oil, a move designed to force Putin to accept lower energy revenue without pulling supply from global markets.
"A large supply cut would delight Moscow, which would benefit from both stabilized, if not higher crude prices, and an implicit sign of solidarity from its OPEC+ colleagues as it braces for looming EU oil sanctions‚" McNally, the Rapidan Energy analyst, said before the cut was announced.
A separate move by the U.S. and other members of the Group of Seven wealthy democracies to impose a price cap on Russian oil is expected to reduce supply, if Russia retaliates by refusing to ship to countries and companies that observe the cap.
Russia "will need to find new buyers for its oil when the EU embargo comes into force in early December and will presumably have to make further price concessions to do so," analysts at Commerzbank said. "Higher prices beforehand -- boosted by production cuts elsewhere -- would therefore doubtless be very welcome."
While the White House has little control over the price of gas, which is guided by global markets, Biden has been more actively engaged on the matter than many of his predecessors.
That includes his order to release 1 million barrels of oil per day from the Strategic Petroleum Reserve, an action that helped lower prices but now makes the U.S. even more vulnerable to cost increases as it faces the challenge of replenishing the reserve.
The administration has already extended the release of that reserve oil into November, when the Energy Department plans to release up to 10 million barrels of crude oil. But the production cuts by OPEC+ suggest the U.S. likely will not be able to restock at the lower prices for which administration officials had hoped.
"Energy prices have declined sharply from their highs, and American consumers are paying far less at the pump than they were several months ago," White House press secretary Jean-Pierre said.
However, Sen. Chris Murphy, D-Conn., told CNBC in an interview the cut in production should lead to a "wholesale revaluation of the U.S. alliance with Saudi Arabia," adding that Biden's July visit did not yield the necessary results.
"When the chips are down, the Saudis effectively choose the Russians instead of the United States," Murphy said.
Information for this article was contributed by Stanley Reed of The New York Times; Jeff Stein, John Hudson, Rachel Lerman, Evan Halper, Adela Suliman and Amar Nadhir of The Washington Post; and David McHugh, Chris Megerian and Josh Boak of The Associated Press.