The Organization of the Petroleum Exporting Countries and its allies aren’t in the business of helping Americans out of the goodness of their hearts.
Instead, they’re in business to ensure that their sale of oil results in a financial windfall for their budgets. Countries such as Saudi Arabia, the UAE, Russia, and Kuwait have bills to pay and subsidies to underwrite —and apparently, the cartel isn’t convinced all of this can be accomplished with oil hovering around $90 a barrel.
OPEC+ AGREES TO CUT OIL PRODUCTION BY 2 MILLION BARRELS A DAY IN BLOW TO BIDEN
Meeting in Vienna on Wednesday, OPEC, which since 2016 has partnered with Russia and 10 other non-OPEC nations to provide more stability in the oil market, announced its deepest output cut since the onset of the COVID-19 pandemic. Starting next month, OPEC+ will reduce production by two million barrels per day from August levels, a decision justified by the cartel as a way to compensate for slower economic growth forecasts in the year to come.
This move came despite a significant Biden administration effort to persuade OPEC to maintain production levels. “There is great political risk to your reputation and relations with the United States and the west if you move forward,” one U.S. talking point spelled out.
Top line: At least on oil, the Saudis and Americans have clashing interests. The U.S. wants to tamp down the amount of money that Americans must shell out at the pump. After gas prices rose to an average of $5.02 in mid-June, the national average for a gallon of regular is now $3.83. Before OPEC+ announced production cuts, Brent Crude closed at $91.80 a barrel, down 25% from its June 8 peak of over $127. All of this was great for the American consumer. The White House could point to the lower gas prices as proof that its interventions were working.
Lower prices, however, meant lower revenues for the major crude producers in OPEC+. We knew the grouping was getting a bit antsy about the market because it already cut production by 100,000 barrels a day back in September, essentially canceling the small oil concessions President Joe Biden received from Gulf producers during his July trip to the region. While those cuts didn’t affect the global market, they did send a clear signal of more to come.
Some U.S. officials may see this decision as a deliberate slap in the face, one more data point to suggest that Saudi Arabia and Russia are getting much cozier than Washington would like — particularly at a time when Russian artillery continues to lay waste to Ukrainian towns and cities. Biden said he was “disappointed by the shortsighted decision by OPEC+ to cut production quotas.” He authorized the release of another 10 million barrels from the running-low Strategic Petroleum Reserve next month.
Still, the blunt reality is that OPEC has gotten used to high oil prices. Aramco is flush, with the Saudi oil giant receiving more than $48 billion in revenue during the second quarter. Saudi Crown Prince Mohammed bin Salman’s drive to turn the kingdom into the Middle East’s next center of finance and technology is expensive, and he needs all the money he can get to finance it. As he sees it, the Americans can complain as much as they want.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Daniel DePetris (@DanDePetris) is a contributor to the Washington Examiner’s Beltway Confidential blog. His opinions are his own.
