In an unexpected announcement, Saudi Arabia and other OPEC+ nations cut oil production by 1.15 million barrels per day, a move that will sharply increase gas prices in the US.
In a completely out-of-the-blue move this Sunday, Saudi Arabi and other members of the OPEC+ issued separate statements, announcing their intention to cuts oil outputs to nearly 1.16 million barrels per day.
According to the statement, the oil cut starts from May and will continue until the end of the year. Speaking of Saudi Arabia’s share of the new oil cut, the Saudi Energy Ministry said that the Kingdom will reduce its production to 500,000 barrels per day in coordination with some OPEC and non-OPEC members, without naming them. The ministry also described the move as a “precautionary measure” aimed at stabilizing the oil market. The cuts represent less than 5 percent of Saudi Arabia’s average production of 11.5 million barrels per day in 2022
This is not the first time in recent months that Saudi Arabia has shocked the West, especially the United States, by suddenly increasing oil prices. Less than five months ago in October last year, Saudi Arabia announced decrease of some 2 million barrels a day of oil production by all OPEC+ nations. At the time, the US was on the eve of midterm elections in which soaring prices of gas were a major issue for voters.
Back then, President Joe Biden rebuked Saudi Arabia and vowed that there would be “consequences” for the OPEC+ countries for the sudden oil production cut. Democratic lawmakers in the US Congress also reacted to the move initiated by Riyadh and called for freezing cooperation with the Kingdom.
Other OPEC+ members followed suit
For their part, other members of the OPEC+ announced in separate statements that they too would decrease their oil production. Iraq said it would reduce its oil production by 211,000 barrels per day, the United Arab Emirates (UAE) by 144,000, Kuwait by 128,000, Kazakhstan by 78,000, Algeria by 48,000 and Oman by 40,000. The announcements were carried by each country’s state media.
Russia’s state news agency also reported that according to the country’s Deputy Prime Minister Alexander Novak, Moscow would join the oil cut voluntarily by reducing 500,000 barrel of oil production until the end of the year.
The new oil production cut, a nightmare for the Biden administration
Even though the newly-announced production cut by the OPEC+ members is only about 1 percent of the nearly 100 million barrels of oil the world uses every day, the impact on gas prices could be disastrous.
“It’s a big deal because of the way oil prices work, because you are in a market that is relatively balanced. You take a small amount away, depending on what demand does, you could have a very significant price response”, says Kevin Book, managing director of Clearview Energy Partners LLC, warning that “the production cuts alone could push U.S. gasoline prices up by roughly 26 cents per gallon, in addition to the usual increase that comes when refineries change the gasoline blend during the summer driving season”.
According to Book’s estimations, the new production cut could make gasoline price reach over $4 per gallon during the summer. An average U.S. price now is at roughly $3.50 per gallon of regular.
Although Saudi Arabia has denied constantly that such production cuts have economic reasons only, the Biden administration believes the Kingdom is turning its back on Washington to ally with the US biggest rival, China. Good to mention that last week, Aramco, the biggest Saudi Arabian public petroleum and natural gas company, announced billions of dollars of investment in China’s downstream petrochemicals industry.