The United State Government has in a last-ditch effort, launched a full-scale pressure campaign to persuade its Middle East allies against a dramatic cut in crude oil output, according to multiple sources familiar with the matter.
This is as there are reports that the oil cartel, OPEC+, may be considering an even larger cut than previously reported—at up to 2 million barrels per day, in their upcoming meeting on Wednesday, in what is regarded as part of efforts to raise oil prices.
That in turn would cause US gasoline prices to rise at a precarious time for the Biden administration, just five weeks before the midterm elections.
The US describes the proposed oil production cut as a ‘hostile act’
According to CNN, President Joe Biden has for the past several days engaged his senior-most energy, economic and foreign policy officials to lobby their foreign counterparts in Middle Eastern allied countries including Kuwait, Saudi Arabia, and the UAE to vote against cutting oil production.
It was reported that some of the draft talking points circulated by the White House to the Treasury Department on Monday described the prospect of a production cut as a “total disaster” and warned that it could be taken as a “hostile act.”
The National Security Council Spokesperson, Adrienne Watson, in a statement said, “We’ve been clear that energy supply should meet demand to support economic growth and lower prices for consumers around the world and we will continue to talk with our partners about that.”
For Biden, a dramatic cut in oil production could not come at a worse time as his administration has for months engaged in an intensive domestic and foreign policy effort to mitigate soaring energy prices in the wake of Russia’s invasion of Ukraine. That work appeared to pay off, with US gasoline prices falling for almost 100 days in a row.
But with just a month to go before the critical midterm elections, US gasoline prices have begun to creep up again, posing a political risk the White House is desperately trying to avoid. As US officials have moved to gauge potential domestic options to head off gradual increases over the last several weeks, the news of major OPEC+ action presents a particularly acute challenge.
Output cut damaging to the global economy
Some of the officials across the US government’s economic and foreign policy teams have also been involved in reaching out to OPEC governments as part of the latest effort to stave off a production cut.
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The White House has asked Treasury Secretary Janet Yellen to make the case personally to some Gulf state finance ministers, including Kuwait and the UAE, and try to convince them that a production cut would be extremely damaging to the global economy.
The US has argued that in the long run, a cut in oil production would create more downward pressure on prices – the opposite of what a significant cut would be designed to accomplish. Their logic is that “cutting right now would increase risks of inflation,” leading to higher interest rates and ultimately a greater risk of recession.
Oil prices climb as OPEC+ considers a 2 million BPD output cut
Meanwhile, oil prices had jumped past the $91 barrel per day mark as OPEC+ consider an even larger cut than previously reported—at up to 2 million barrels per day. There had been earlier reports that the oil cartel was weighing up a 1 million barrels per day production cut as part of efforts to stop the decline in global oil prices.
Despite the growing worry of a severe global recession and the impact that would have on oil demand, the OPEC+ group feels that the markets are largely ignoring market fundamentals.
The first rumor was that Russia was pushing OPEC+ to implement a 1 million BPD production cut. The group was later reported to be considering a production cut between 500,000 BPD and 1 million BPD. Shortly after, yet another source said that OPEC+ was considering an even larger cut of more than 1 million BPD. The latest news from OPEC+ delegates suggests that the group is considering yet another option: a 2 million BPD cut.
Also, apart from the current oil prices, another factor in determining OPEC+’s production plans for November is the group’s available spare capacity—without which the group would be unable to control the market in the future.
