OPEC+ issued the largest cuts to oil production since the 2020 pandemic on Wednesday, following a meeting in Vienna, cutting supply to much of the world’s oil production, despite demands from the Biden administration to increase its output.
The Biden administration previously demanded that OPEC+ increase the production of oil when it proposed cutting the supply by one million barrels per day. The deep cuts to oil production on Wednesday raised that figure to two million barrels per day, and the figure will not be approached again until the end of next year.
The cuts could reverse the recovery of oil prices which have dropped to around $90 from $120 three months ago.
According to Citi analysts, the higher oil prices could be driven by the production cuts and would likely spell bad news for the Biden administration ahead of the November midterms, Reuters reported.
“There could be further political reactions from the U.S., including additional releases of strategic stocks, along with some wildcards including further fostering of a NOPEC bill,” Citi said, referring to anti-trust legislation against the oil cartel.
JPMorgan told Reuters that it expects the Biden administration to implement countermeasures by releasing more oil stocks. As it stands, the U.S. strategic oil reserve is at a 40-year-low, a figure that threatens to go even lower, with the new development.
OPEC+ sources said the agreed production cuts of 2 million bpd or 2% of global demand would be made from existing baseline figures.
That means the cuts would be less deep because OPEC+ fell about 3.6 million barrels per day short of its output target in August.
Under-production happened because of Western sanctions on countries such as Russia, Venezuela and Iran and output problems with producers such as Nigeria and Angola.
According to Saudi Arabia and other members of OPEC+, which includes Russia, the organization seeks to prevent price volatility instead of targeting any particular oil price.