OPEC, allies move to slash oil production,
eliciting blistering White House response
Sen. Chris Murphy (D-Conn.) told CNBC in an interview the cut in production should lead to a “wholesale reevaluation of the U.S. alliance with Saudi Arabia,” adding that Biden’s visit this year did not yield the necessary results from Riyadh. “When the chips are down, the Saudis effectively choose the Russians instead of the United States,” he said. “We need them right now.”
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A coalition of oil-producing nations led by Russia and Saudi Arabia announced Wednesday it will slash oil production by 2 million barrels per day, in a rebuke to President Biden that could push up gas prices worldwide, worsen the risk of a global recession and bolster Russia in its war in Ukraine.
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...Biden administration officials had launched an extraordinary effort to press Saudi Arabia to produce more oil to compensate for the global shortage caused by Russia’s invasion of Ukraine, with the president personally visiting Saudi leaders in a trip to Jiddah. With this move, Saudi Arabia has rejected those entreaties at least in part, leaving senior White House officials contemplating their next steps and publicly hinting at unprecedented measures to undercut the gulf nation’s grip on international energy markets.
Russia will benefit from the cut, because lower production will increase the price of oil — helping Moscow finance its war effort in Ukraine. ...American consumers could also be strained by higher gas prices, potentially imperiling the Biden administration’s determination to lower gas costs ahead of the 2022 midterm elections.
This would be the first time the group cut oil production targets since the beginning of the pandemic. And it’s more aggressive than many analysts had expected even a few days ago. The OPEC Plus coalition, which is led by crude-oil giant Saudi Arabia, said the cut in production would take effect in November. OPEC Plus said in a statement the move was necessary to stabilize the recent fall in global energy prices.
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[In a] statement added...the administration [said it]will consult with Congress on additional mechanisms “to reduce OPEC’s control over energy prices” — suggesting the U.S. policymakers could be interested in repealing a long-standing exemption to federal antitrust law that allows the consortium to effectively coordinate on prices. If executed, that move would in turn elicit fierce pushback from Saudi Arabia and its allies, analysts say.
We exempted OPEC from anti-trust laws? Well, not quite:
Don't know how we could apply or exempt a foreign cartel from our domestic anti-trust laws although as that article states the American Bar Association advised that we could.
“This clearly portends the potential for higher oil prices, reinforcing recessionary forces in the global economy and heightening risks for global financial instability,” said Mark Sobel, a former senior Treasury Department official.
...gas prices are likely to increase in the United States perhaps by roughly 10 percent in much of the country...
The production cuts could lead to considerable political fallout in the United States, where midterm elections will be held in just over a month. Falling gas prices this summer played a big role in lifting the political fortunes of Democrats, who face a tough election season. They also helped elevate Biden’s approval rating and gave the party a glimmer of hope for blunting a widely anticipated red wave in November.
The OPEC coalition’s move could also add to inflationary pressures in the United States and Europe, as well as undercut the effort to bolster Ukraine as it defends itself against the Russian invasion. Russia relies on gas and oil sales for a large portion of its budget and had pushed for the production cut, which will enable Moscow to sell oil for higher prices on the global market, generating more revenue for its war and troop mobilization.
Oil prices jumped this week in anticipation of Wednesday’s news. They are expected to increase further now, probably to over $100 per barrel.
The Biden administration waged a last-minute push to persuade Middle East allies not to dramatically cut oil production ahead of the meeting, according to senior administration officials who spoke on the condition of anonymity to discuss internal strategy. That effort, involving senior-level discussions with foreign counterparts, was seen internally as a long shot.
...gas prices were already up sharply in some areas of the United States where there are several hotly contested congressional races, as well as close races for governor. Those increases were propelled by maintenance at refineries on the West Coast and a large fire at a refinery in the Midwest.
Nevada, Washington, Oregon and Alaska have all seen prices jump by at least 40 cents a gallon over the past week. Throughout swing states in the Midwest, the increase has been less severe, but enough for drivers to notice the pain. In California, where there are more than a half-dozen close congressional races, prices jumped 62 cents over the last week to $6.38 per gallon of gasoline.
...Biden has more actively engaged on the matter than many of his predecessors. That includes his order to release 1 million barrels of oil per day from the Strategic Petroleum Reserve, an action that helped lower prices but now makes the United States even more vulnerable to cost increases as it faces the challenge of replenishing.
The increasingly challenging realities of the global energy market are
certain to raise tensions between the Biden administration and large oil
producers. Biden and other Democrats have been repeatedly attacking oil
companies for reaping record profits at a time when consumers are
struggling to pay for a tank of gas.
