December 9, 2022

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OPEC + heads for deep supply cuts and collides with the United States

OPEC + heads for deep supply cuts and collides with the United States

VIENNA/LONDON (Reuters) – OPEC+ appears ready to make deep cuts to its oil production targets when it meets on Wednesday, to curb supply in an already tight market despite pressure from the United States and other countries to pump more.

A possible OPEC+ cut could lead to a recovery in oil prices, which fell to around $90 from $120 three months ago on fears of a global economic recession, higher US interest rates and a stronger dollar.

Sources told Reuters that OPEC +, which includes Saudi Arabia and Russia, is working on cuts of between 1 million and 2 million barrels per day, and several sources said the cuts could be close to 2 million barrels.

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An informed source said that the United States is pressing OPEC not to proceed with the cuts, arguing that fundamentals do not support it. Read more

Sources said it was still not clear whether the cuts might include additional voluntary cuts by members such as Saudi Arabia or whether the cuts might include the group’s current production shortfall.

OPEC + fell by about 3.6 million barrels per day from the target production level in August.

Washington’s reaction

“High oil prices, if driven by significant production cuts,

Likely to irritate the Biden administration ahead of the US midterm elections.”

“There may be more political backlash from the US, including additional releases of strategic stocks along with some perverts including strengthening the NOPEC law,” Citi said, referring to US antitrust law against OPEC.

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JPMorgan also said it expected Washington to take countermeasures by releasing more oil stocks.

Saudi Arabia and other members of OPEC + – which includes the Organization of the Petroleum Exporting Countries and other producers including Russia – said they were seeking to prevent volatility rather than targeting a specific oil price. Read more

Benchmark Brent crude was trading flat below $92 a barrel on Wednesday after rising on Tuesday.

The West has accused Russia of weaponizing energy, creating a crisis in Europe that could lead to gas and energy rationing this winter.

Moscow accuses the West of arming the dollar and financial systems such as Swift in response to Russia’s sending of troops to Ukraine in February. The West accuses Moscow of invading Ukraine, while Russia calls it a special military operation.

Part of the reason Washington wants to lower oil prices is to deprive Moscow of oil revenues while Saudi Arabia has not condemned Moscow’s actions.

Relations between the kingdom and the administration of Biden, who traveled to Riyadh this year but failed to secure any firm commitments on energy cooperation, have been strained.

“The decision is technical, not political,” UAE Energy Minister Suhail al-Mazrouei told reporters.

“We will not use it as a political organization,” he said, adding that concerns about a global recession would be one of the main topics.

Russian Deputy Prime Minister Alexander Novak, who was included on the US sanctions list for US nationals last week, also arrived in Vienna. It is not subject to European Union sanctions.

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Editing by David Gregorio, Jason Neely and Louise Heavens

Our criteria: Thomson Reuters Trust Principles.