Dan Eberhart
OPEC-plus's headline-grabbing decision to cut production by 2 million barrels per day in November is a slap in the face to President Joe Biden and other Western leaders.
While the actual drop will be about 1.2 million barrels a day due to the Saudi-led cartel’s ongoing failure to hit production targets, the reduction is still a heavy blow to President Joe Biden’s efforts to rein in energy prices.
Even if executed at a 60% level, the OPEC-plus cuts will push inventory draws into bullish territory. That puts benchmark Brent crude on the path to reach $100 a barrel before the end of the year. The assault on oil markets comes when the global economy is already teetering on the cusp of recession and right as the northern hemisphere heads into the cold winter months.
OPEC-plus leaders claim their decision is in response to an “uncertain” global economic outlook and the need for long-term guidance in the oil market and that it needs more spare production capacity to deal with the volatile market going forward.
But politics are clearly at play. The Saudi Arabia-led cartel and its allies, mainly Russia, are siding with Moscow over the West, which lobbied hard against further cuts by the group of 26 producing nations. President Biden was disappointed by the “short-sighted decision,” and the White House said it was clear that OPEC-plus aligned with Russia.
The Great Power Competition is alive and well.
OPEC-plus is opting for a “sell more for less” strategy amid weaker-than-expected demand as the threat of recession looms. That is precisely the outcome Moscow wants in the face of tightening Western sanctions, a European Union import ban set to take effect on December 5th, and a price cap on Russian exports imposed by the G7 nations.
Even if Russia receives less cash for its crude oil due to the price cap – and remember, it’s already selling oil at a significant discount to China and India – it will still generate healthy revenues to fund its war against Ukraine.
This is a major victory for Russia and a big hit to the G7 – the United States, Canada, Japan, France, Italy, the UK, and Germany.
Why did the Saudis do it? It’s no secret that Saudi Arabia and other OPEC-plus member nations were getting tired of Western interventions in the global oil market, which they consider theirs alone to control. They have also been frustrated by the United States and Europe’s ongoing attempts to dismiss oil’s role in the energy transition in their efforts to tackle
In response to the OPEC-plus cuts, Democrats in Congress are introducing bills to reduce our military assistance to the Saudis, but that’s aiming at the wrong target – it won’t do any good to cut military aid to Saudi Arabia. We must address our failing energy policy and take an America First approach to reduce gas prices.
The Biden administration has released record amounts of oil from U.S. strategic reserves this year to combat rising oil prices, taking Strategic Petroleum Reserve (SPR) inventories down to a 40-year low. That has only further weakened U.S. energy security and leaves our nation ill-equipped to deal with a worsening supply crunch.
Policymakers should be doing everything in their power to produce more energy here in America, not asking foreign regimes for more oil. It is time to get serious about reducing prices and stop pretending that energy security doesn’t matter.
Instead, Biden has restricted drilling on federal lands, reversed efforts to streamline the permitting process, and generally demonized U.S. oil producers even though we are decades away from completing the transition to a low-carbon economy. He’s also done zero to address the demand side of the equation. The Biden administration’s energy policy is gaslighting at its finest.
The Biden administration’s criticism of the Saudis for cutting production is an excuse for the administration’s restrictions on domestic oil and gas production.
It’s ridiculous that any politician would blame the Saudis when our own policies have made us more dependent on foreign – and often hostile – energy suppliers. Saudi Arabia isn’t the villain; our bad policies are.
There is clearly bad blood between Biden and Saudi Crown Prince Mohammed bin Salman over the murder of Jamal Khashoggi, and the White House’s attempts to resurrect a nuclear deal with Iran, Saudi Arabia’s arch enemy. The Saudis view Russia as a more important ally than the United States right now. OPEC-plus wants to keep Russia in the fold and Moscow happy. The cartel could care less about its relations with the West.
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