Following a year of volatility at the pump, the OPEC+ coalition said on Wednesday that it will reduce oil production by 2 million barrels per day.
The OPEC+ alliance cited the “uncertainty that surrounds the global economy and oil market outlooks” in its announcement of the reduction.
Since the outbreak of the pandemic, this constitutes the biggest production reduction.
The Biden administration expressed its disappointment with the choice in a statement, labelling it “shortsighted” in light of the fact that Russia’s invasion of Ukraine had already driven up oil costs globally.
The report stated that lower- and middle-income countries, which are already suffering from high energy prices, would be the most negatively impacted by this scenario at a time when sustaining the world’s energy supply is of the utmost importance.
Following a surge in oil and gas prices this summer due to the Russian invasion of Ukraine, the oil cartel and its allies announced their decision in Vienna.
Between July and mid-September, prices generally decreased as President Joe Biden worked to ease financial pressure on Americans ahead of the midterm elections by lowering gas prices.
Global oil prices are now anticipated to increase from roughly $93 to $100 per barrel, with U.S. benchmark prices increasing from $88 to $92. The price of oil had risen to as much as $128 a barrel globally at the time of Russia’s invasion of Ukraine.
According to Caroline Bain, head of commodities research at Capital Economics, “we had always expected supply growth to stall later this year and into 2023, but this fresh OPEC+ action has re-enforced our view that prices will conclude the year a little higher.”
Due to rising demand and problems with American refineries, gas prices in the United States had already been going higher in recent weeks. Wednesday saw an average gallon of gas cost $3.83.
According to a AAA spokesperson, Andrew Gross, “the regional disparities in gas costs are obvious at the moment, with prices on the West Coast topping $6 a gallon and higher, while prices are plunging below $3 in some locations in Texas and Gulf Coast states.”
According to Gross, at least six refineries in California are undergoing repair, and there is a meagre pipeline supply from regions east of the Rockies to the West Coast.
Gas prices and Biden’s popularity rating have a significant inverse relationship, according to political observers, because voters tend to use gas prices as a proxy for inflation and, consequently, the health of the economy.
The Biden administration, according to Wall Street experts, might fight OPEC’s action by releasing stocks from the country’s strategic petroleum reserve and even supporting the so-called NOPEC bill, which would punish other oil-producing governments by making them subject to antitrust lawsuits.
OPEC+ is made up of 11 non-member allies and 13 oil-exporting nations, including Russia. Saudi Arabia serves as the organization’s de facto leader.
