OPEC+ agreed to the deepest cuts to oil production since the arrival of the Covid-19 pandemic at a meeting in Vienna on Wednesday. In this way, it further curbs supply in an already tight market, despite pressure from the United States and other countries to pump more. There is speculation that the cut could spur a recovery in oil prices that have fallen to around $90 from $120 three months ago on fears of a global economic downturn, rising U.S. interest rates and a stronger dollar.
For its part, the United States had pressured OPEC not to proceed with the cuts, arguing that fundamentals do not support them, a source familiar with the matter said. They also said it was unclear whether the cuts could include additional voluntary reductions by members such as Saudi Arabia, or whether they could include the group’s existing underproduction. OPEC+ fell about 3.6 million barrels per day below its production target in August.
“Higher oil prices, if driven by sizable production cuts, would likely irritate the Biden administration ahead of the U.S. midterm elections,” Citi analysts said in a note.
“There could be more political reactions from the United States, including additional releases of strategic reserves, along with some wild cards that include further encouragement of a NOPEC bill,” Citi said, referring to a U.S. antitrust bill against OPEC. For its part, JPMorgan also said it expects Washington to implement countermeasures by releasing more oil reserves.
