Opec+ agrees to cut output by 2mn barrels a day

Saudi Arabia and Russia have led the Opec+ cartel in a deal to make deep oil production cuts to raise prices, risking a backlash from the US and European countries already battling surging energy inflation.

The Opec+ group will cut 2mn barrels a day, equivalent to 2 per cent of global supply, it said, following its first in-person meeting in almost two years in Vienna.

The group said it was acting “in light of the uncertainty that surrounds the global economic and oil market outlooks, and the need to enhance the long-term guidance for the oil market”.

The decision to cut came despite extensive lobbying by the US government in the run-up to the meeting, and marks a significant breach with the Biden administration, which is seeking to drive down oil and petrol prices ahead of crucial midterm elections in November.

Washington criticised the move on cuts, saying it was a “shortsighted decision” at a time when “maintaining a global supply of energy is of paramount importance”.

In response, the US said it would continue to release oil from its strategic stockpiles “as appropriate” and was exploring “additional responsible actions” to lift domestic oil supply.

Biden will also work with Congress on legislation to “reduce Opec’s control over energy prices”, its statement added, in an apparent reference to anti-cartel legislation known as NOPEC that has long been considered by US lawmakers but never passed.

Oil prices have risen 5 per cent since Friday in the run-up to the meeting, and international benchmark Brent edged higher to $93.95 a barrel after news of the cut.

Analysts said Saudi Arabia’s move, which would prop up oil prices and damage western governments’ efforts to curb Russian oil income used to sustain its war in Ukraine, marked a significant moment in Riyadh’s 75-year-long energy alliance with the US.

“Saudi Arabia has set Opec on a collision course with the free world. They have sided with Russia in the name of protective oil market management — just as consumers across the world are battling inflation and the rising cost of living,” said Bill Farren-Price, a veteran Opec watcher at consultancy Enverus. “There are bound to be political consequences for Riyadh.”

The cartel’s decision to cut comes hours after EU countries agreed to a US plan to impose a price cap on Russian oil exports, an effort by western countries to drive down prices of crude and fuel. Saudi Arabia and other Opec Gulf countries feared this plan would cut oil prices across the board and could even be used against them in future.

“This is hugely political and a very clear signal of Opec’s discontent re the price cap,” said Amrita Sen, chief oil analyst at Energy Aspects. “Regardless of whether the price cap is actually effective, they see this as a dangerous precedent.”

Opec+ members have also been irritated by the Biden administration’s continued releases of oil from the reserve maintained for supply emergencies, which is at its lowest level since 1984.

Some analysts said the cuts risked pushing up prices just weeks ahead of the imposition of new sanctions on supplies from Russia, the world’s largest petroleum exporter.

“Even if the actual cut turns out to be smaller than the headline amount, the fact remains Saudi-led Opec have decided to pursue a substantial reduction in oil supply in defiance of Washington’s will,” said Paul Sankey, an oil analyst who attended the meeting in Vienna. said.

“This is fundamentally a bad result for the Biden administration, and also the world economy.”