FRANKFURT, Germany — The OPEC+ oil-exporting alliance will discuss a potentially big cut in the amount of crude oil it supplies to the global economy on Wednesday, a move that could help Russia survive an impending European ban on oil imports and raise gasoline prices for American drivers. before the national midterm elections.
Energy ministers from the OPEC cartel, of which Saudi Arabia is a leading member, and non-member allies including Russia are meeting in person at the group’s headquarters in Vienna for the first time since early 2020 at the start of the COVID-19 pandemic.
According to analysts at Commerzbank, the production cut could benefit Russia by setting higher prices ahead of a European Union ban on imports of most Russian oil, sanctions over the invasion of Ukraine, which will come into effect at the end of the year.
Russia “will need to find new buyers for its oil when the EU embargo comes into effect in early December, and it is assumed that it will have to make further price concessions to do so,” the analysts wrote in a note. “So higher prices up front – pushed by production cuts elsewhere – will no doubt be very welcome.”
Moscow has also faced separate pressure from the US and other G7 wealthy democracies to impose a price cap on Russian oil by December 5. The EU agreed on new sanctions on Wednesday, which are expected to include price caps on Russian oil, an EU official said.
Oil prices rose this summer as markets worried about a loss of Russian supplies due to sanctions over the war in Ukraine, but fell as worries about a recession in major economies and China’s COVID-19 restrictions weighed on demand for oil.
The drop in oil prices has been a boon for American drivers, who saw gas prices drop at the gas station even before costs began to rise recently, and for U.S. President Joe Biden as his Democratic Party prepares for congressional elections next month.
It is not yet clear what effect the output cuts will have on oil prices – and thus on gasoline prices – because members are already unable to meet the quotas set by OPEC+. Yet Saudi Arabia may be reluctant to strain its relationship with Russia, even though the world’s biggest oil exporter has had some reservations about the cuts and recently brought in leaders from Biden to German Chancellor Olaf Scholz to talk about energy supplies.
Analysts at Commerzbank said a small cut would likely push oil prices further lower, while the group would need to remove at least 500,000 barrels a day from the market to lift prices.
Such production cuts “will undoubtedly signal to the market the determination and determination of the cartel to support oil prices,” said UniCredit economist Edoardo Campanello. But the supply will fall short of what was announced.
“If the group cuts planned production by 1 million bpd, actual output is likely to fall by around 550,000 bpd as countries like Russia or Nigeria that produce below quota will see their formal target production will decrease, but will remain above what they can currently. products,” Campanello said.
At the last meeting in September, the group reduced oil production by 100,000 barrels per day in October. The token cut did not help lower oil prices, but it did signal to markets that OPEC+ is ready to act if prices continue to fall.
Brent, the international benchmark, has fallen to $84 in recent days after hovering above $100 a barrel for most of the summer months. The price of oil in the US fell below 80 dollars per barrel on Friday. On the eve of the meeting, US crude oil traded at $86.38, Brent – at $91.66.
The White House declined to comment on how OPEC leaders will make a final decision on oil production, but spokeswoman Karin Jean-Pierre told reporters on Tuesday that the United States would not extend releases from its strategic reserve to boost global supplies.
“We are not looking at new releases,” Jean-Pierre said.
Biden tried to take credit for the drop in gasoline prices from an average June peak of $5.02 — administration officials highlighted an announcement in late March that a million barrels a day would be released from the strategic reserve over six months. High inflation is a fundamental obstacle to Biden’s approval rating and has reduced Democrats’ chances in the midterm elections.
Gasoline prices have recently risen due to shutdowns at refineries in California and Ohio and range widely, from more than $6 a gallon in California to less than $3 in parts of Texas and the Gulf Coast, according to the Federation of Automobile Manufacturers. AAA clubs. The national average price of $3.80 was up slightly, but down from the June 14 record high.
Among the main factors weighing on oil prices have been fears of a recession in places like the US and Europe, and a slowdown due to China’s strict measures against COVID-19.
Higher inflation is eroding consumer purchasing power, while central banks are raising interest rates to stop overheating prices that could slow economic growth. Oil prices at their summer highs and higher natural gas prices, spurred by Russian supply cuts to Europe, have fueled inflation.
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Associated Press reporter Josh Boak contributed from Washington.
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