OPEC+ committed to a 2 million barrels per day production cut and increased tensions with the US and President Biden who perceives the move by OPEC to be an alignment with Russia.
Much of the west has been targeting Russia with sanctions and the increasing price favours Putin. Despite the sanctions imposed on Russia, Putin’s administration still earns huge revenues from oil and higher prices will boost this.
Oil prices have rallied 10% in the run up to the OPEC+ decision and the cut promises to keep prices elevated in the short-term.
Biden will also be infuriated at the timing of the cut and the impact on US consumers who had been enjoying lower prices at the pump in recent months. The US will hold mid-term elections in November and a sudden jump in petrol price will damage Biden’s appeal.
“The President is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine,” the White House said.
Biden’s response
The move by OPEC+ is seen as a political one and there is speculation Biden will retaliate with the easing of sanctions on Venezuela to allow oil to flow to Europe and the US.
“The US may attempt to reach a deal with Venezuela to restore some of its production and increase supply to the market. Despite this, the situation remains uncertain and any major developments could lead to a noticeable increase in volatility on the oil market,” said Walid Koudmani, chief market analyst at financial brokerage XTB.
Biden had been releasing huge amount of the US strategic petroleum reserve to help combat the impact of Russia’s invasion of Ukraine. The amount was supposed to total 180m barrels by the end of October, however, there are now reports an additional 10m will be released in November.