The Organization of Petroleum Exporting Countries, Russia, and its other allies, known collectively as OPEC+, have agreed to cut daily oil production by two million barrels a day in an attempt to lift oil prices back up above $100 a barrel in the face of a weakening global economy.

The cut, which will take place next month, represents about 2 percent of the world’s current daily oil supply.

The actual reduction is likely to be closer to 600,000 barrels a day, several OPEC+ delegates told reporters, because a number of OPEC+ producers already are failing to meet their production targets, as we reported in “OPEC+ Continues to Raise Oil Output: What’s the Deal?” (8 Feb 2022).

“The actual hit to oil supply will be much smaller” than two million barrels, Capital Economics confirmed in a note to clients, and predicted oil will close this year at $100 a barrel.

The expected supply pinch already is raising U.S. gasoline prices just ahead of the midterm Congressional elections. Republicans have been pounding Democrats over high gas prices and inflation generally.

Oil prices had fallen into the mid-$80s recently, then edged up in advance of OPECs Vienna meeting last week. Benchmark Brent crude posted a price of $93.95 after OPEC’s announcement and was trading at $96.19 at 5 p.m. U.S. EDT on 10 October.

OPEC’s move swiftly followed an agreement by the U.S. and European Union to cap the price of Russia’s exported oil in another attempt to deny revenue that will fund Vladimir Putin’s Ukraine war.

OPEC feared the cap would push down oil prices in general.

“This is hugely political and a very clear signal of OPEC’s discontent regarding the price cap,” oil analyst Amrita Sen at consulting firm Energy Aspects told the Associated Press.

“Regardless of whether the cap is effective,” she added, “they see this as a dangerous precedent.”

The production cut also is seen as a slap to U.S. president Joe Biden, who visited Saudi Arabia in July to personally lobby for greater oil production to lower gasoline prices around the world. 

The Biden administration was quick to denounce the cut in a public statement, calling it “short-sighted” when “maintaining a global supply of energy is of paramount importance.” 

The White House also said it is “clear” that in its decision, OPEC+ is “aligning with Russia” and has put itself “on a collision course with the Free World.”

Saudi energy minister Abdulaziz bin Salman denied the cut was an act of defiance directed at Biden or the West.

“Show me the act of belligerence,” he said to reporters. Instead, the cut is meant to encourage long-term investment in oil production, he explained, under OPEC’s mission to be a steward of stable energy markets. 

Investment in exploration and expanding production has not recovered after the COVID era, which we noted in “Oil Majors Withhold Investment in New Production” (3 Aug 2021) and “Oil Majors Use Cash to Buy Back Stock, Increase Dividends” (10 May 2022).

OPEC’s production cuts come as Europe struggles with a full-fledged energy crisis after Russia has shut off almost all natural gas shipments to the continent and the European Union has vowed to end its imports of Russian oil by the end of this year.

After OPEC’s announcement, Biden directed the release of another 10 million barrels of oil from the U.S. Strategic Petroleum Reserve.

The White House said it will work with Congress to continue to find ways to reduce energy prices for U.S. consumers.

TREND FORECAST: As we have said before, OPEC, led by Saudi Arabia, sees its markets diminishing in the future as the world transitions to non-fossil fuels and plastics made from feedstocks other than petroleum.

In response to global economic shifts, the OPEC cartel will continue to tweak oil prices to maximize profits it can still extract from a resource that will see demand shrink in the coming decades.

The world economy is sinking into Dragflation, our Top 2022 Trend in which prices rise while economic productivity shrinks.

That will prevent oil prices from rising no more than slightly into triple digits, and then only for a short period. As the global recession continues, oil prices will stabilize near their current levels and eventually ease lower.

However, there are the wild cards, and one being played now is the Ukraine War and the sanctions imposed on Russia by NATO and the United States which has dramatically driven energy prices up in Europe and other nations. 

We forecast that with the United States and NATO ramping up the Ukraine War following Russia’s latest rounds of attacks following the Ukraine’s blowing up their Crimea Bridge last Saturday, natural gas and oil prices will continue to rise… hitting new highs.