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The 24-nation “OPEC+” oil cartel — OPEC gained a plus sign in 2016 when it allied with other oil-producing countries — announced yesterday that it plans to dramatically cut oil production by 2 million barrels a day, beginning in November. The goal of the huge production cut is to raise — err, “stabilize” — world oil prices, which had been declining for weeks after high oil prices earlier this year helped to spike inflation rates around the world.
By complete coincidence, the move is expected to make gasoline prices go up in the US right before the midterm elections in November, as US producers anticipate higher costs. But it sure would be crazy to think that Saudi Arabia and Russia (the co-chair of OPEC+) would want to influence American elections, what a lot of silly conspiratorial thinking. After all, how would either country benefit from a possible Republican takeover of Congress in a tight election year in which Democrats have a reasonable hope of holding the Senate, and possibly the House, too?
A White House statement released in response to the announcement said that President Biden was
disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine. At a time when maintaining a global supply of energy is of paramount importance, this decision will have the most negative impact on lower- and middle-income countries that are already reeling from elevated energy prices.
The statement said Biden will release an additional 10 billion barrels of oil from the US Strategic Petroleum Reserve next month, in an effort to help keep prices from spiking.
One reason world oil prices had been coming down is that the US and other nations had been releasing strategic reserves in an effort to offset inflation — and it had been working, too, as oil prices came down from around $120 a barrel in the spring to less than $90 in September.
NPR reports that it’s not yet clear how much the production cuts will increase oil prices, but it’s likely to be substantial:
The world consumes up to 100 million barrels of oil a day, so taking 2 million off the market would have a noticeable effect. […]
Yasser Elguindi, the head of macro research at Energy Aspects, says there’s a perception that the Saudis are trying to push prices back to or above $100 per barrel by cutting production and tightening the market. He says the magnitude of the proposed cut has caught people by surprise.
“OPEC is trying to shock and awe with a big production cut number that is going to get people’s attention,” he says. “And they’re trying to support prices to keep them from falling further.”
The announcement is also being seen as a big middle finger to Biden, who had traveled to Saudi Arabia in July to ask leaders there to not cut production, making the argument that short-term increases in oil revenue from price hikes would be lost if higher inflation creates a world recession and demand collapses.
Also too, Russia will benefit — at least in the short term — from higher oil prices, since oil is the one thing its crapsack economy does well, and it needs the revenue to keep its war in Ukraine going. NPR points out that
Despite sanctions, Russia hasn’t experienced a huge decline in production.
That could change by year’s end, when the European Union is expected to stiffen sanctions on Russia. Elguindi says it’s interesting to note that the Russians — until now — have never asked for production cuts.
“And about a week ago, they effectively came and asked OPEC to cut production by a million barrels a day,” he says. “I think that’s a recognition that they are going to lose some volume going forward, and whatever they’re going to lose in volume, they need to make up for in price.”
Another oil analyst, Jacques Roussea of ClearView Energy Partners, told NPR that since Russian production is already below its OPEC+ quotas, Russia may not even reduce its production, leaving Saudi Arabia to do most of the production cuts.
Beyond the potential short-term disruptions from the OPEC+ production cuts, the Biden administration is in talks with the Venezuelan government aimed at possible reductions of sanctions in exchange for political reforms in Venezuela, the Wall Street Journal reports. If an agreement is reached, that could allow Chevron to resume oil production in Venezuela, which could potentially offset some of the OPEC+ cuts. It’s a big “if,” as the Journal reports, according to “people familiar with the proposal.”
In exchange for the significant sanctions relief, the government of Venezuelan President Nicolás Maduro would resume long-suspended talks with the country’s opposition to discuss conditions needed to hold free and fair presidential elections in 2024, the people said. The U.S., Venezuela’s government and some Venezuelan opposition figures have also worked out a deal that would free up hundreds of millions of dollars in Venezuelan state funds frozen in American banks to pay for imports of food, medicine and equipment for the country’s battered electricity grid and municipal water systems.
U.S. officials said details are still under discussion and cautioned that the deal could fall through, because it is contingent on Mr. Maduro’s top aides resuming talks with the opposition in good faith.
In the short term, the story points out, any such deal wouldn’t get a great deal of new oil on world markets, since Venezuela’s oil infrastructure has gone to hell.
Read More: Have We Mentioned Just How Amazing The Climate Bill Is? Let Us Do So ONCE MORE
In the long run, of course, the world need to greatly expand the transition to renewable energy as quickly as possible, what with the whole climate emergency putting human civilization at risk. Wouldn’t it be terrific to actually meet the goal of shifting away from petroleum by midcentury, so that fluctuations in the price of fossil fuels won’t mean the potential end of democracy? Good thing we passed the infrastructure and climate bills, which are actually likely to get us much of the way there.
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