On Oct. 5, the OPEC+ alliance decided to cut daily oil production by 2 million barrels per day, representing 2 percent of the daily global oil output.
This was done with the unanimous consent of the alliance, which includes the 13 OPEC member countries, in addition to 10 countries allied with it from outside, with a total of 23 countries.
According to the Wall Street Journal, the administration of US President Joe Biden had hoped to postpone the cut until the end of next November or after the US midterm elections in the House of Representatives and Senate. They also hoped that the cut would be at a rate of 1 million barrels rather than 2 million, in a way that ensures that oil prices do not rise. In this case, the Democrats’ chances of midterm renewal declined after about two weeks.
The decision to cut production next month does not mean that it will decline by 2 million barrels, and it is assumed that the cut will not exceed 1 million barrels per day. For example, Kazakhstan’s daily production ceiling is over 2.7 million barrels per day, which is required to be cut to 1.6 million barrels per day. In fact, before the cut in August, it produced only 1.196 million barrels, which means that it only benefited from 510,000 barrels of its pre-cut quota. During the same period, Russia itself produced its quota in November, and it is confirmed that most countries leave a gap between their quota and their actual production, exceeding half a million barrels per day.
What irritated the Biden administration in the decision of the OPEC+ alliance is the timing because it coincides with the US midterm elections on Nov. 8, where the 435 members of the House of Representatives will be elected, along with 35 members of the Senate. At present, the Democrats control the majority in both parties, but it is not unlikely that they will lose it.
The decision of the OPEC+ alliance is purely economic and without political issues that serve the interests of the producing countries.
Dr. Bader bin Saud
Opinion polls indicate equal opportunities between the two parties. Certainly, important news and events may tip the balance of one party over another, specifically in swing states where gasoline prices have risen. Recent statistics indicate that 37 percent of Americans are affected in their electoral decisions by prices and living conditions.
Waving the No Oil Producing and Exporting Cartels Act, aimed at abolishing the sovereign immunity of OPEC countries, and thus enabling Americans to sue them in US courts for manipulating oil markets, would not do much good. The bill was submitted 16 times over the past 12 years since 2000, and it bypassed the Judicial Committee in the House of Representatives four times before bypassing it for the fifth time in June 2022. The administrations of George W. Bush, Barack Obama, and Donald Trump did not succeed in passing it, and I do not imagine that Biden will succeed, as according to what Reuters reported in 2019, it will harm America more than others and will make the oil countries sell their oil in currencies other than the dollar, in addition to liquidating their investments and selling their US bonds.
Therefore, the Americans have nothing but to live with the decision, and it seems that the best way to mitigate its effects is to use the strategic reserves of American oil to overcome the crisis and to continue to pump more than 140 million barrels over the coming period, even though it declined by a large percentage and reached levels not known since 1984.
Before the OPEC+ decision, the US Department of Energy tried to persuade America’s refineries not to export fuel abroad and rather keep it in the local market and raise their stocks of it to cut its prices. However, America’s refineries objected to that request, so why do others accept what the Americans rejected? It is remarkable that the prices of US exported gas for Europe during the current year rose by 97 percent and, in contrast, oil prices only increased by 29 percent, including the rise after the decision to cut production.
The decision of the OPEC+ alliance is purely economic and without political issues that serve the interests of the producing countries. One consistent evidence is that Saudi Arabia’s Ministry of Finance has put in its estimates for the 2023 budget that oil revenues will reach $200 billion on the basis that the price of oil will be in the range of $76 per barrel. This is to ensure a budget surplus of up to $2.4 billion. It means that it is in the Saudi interest to keep oil prices above $80 a barrel, given that forecasts indicate the global economy will enter a brutal recession and a high drop in demand for crude oil.
The Kingdom stood neutral on the Ukrainian crisis from the beginning, provided the people and government of Ukraine with humanitarian aid worth $400 million, voted for Ukraine in the UN General Assembly, and mediated the file of prisoners of war between Ukraine and Russia. It is unacceptable to outbid its role and positions or drop accusations imagined purely for electoral purposes.
- Dr. Bader bin Saud is a weekly columnist for Al-Riyadh and Okaz, a media and knowledge management researcher, and the former deputy commander of the Special Forces for Hajj and Umrah in Saudi Arabia.