Oil cartel joins forces with Russia to cut supplies

Saudi Arabia has been accused of siding with Russia to maintain a stranglehold on oil exports and prevent prices from falling further.

The Opec+ global cartel of oil producing countries defied Joe Biden and agreed to cut output by two million barrels per day (bpd), the largest reduction since the height of the pandemic in April 2020, when it cut output by 9.7m bpd.

The production cuts were decided hours after the EU agreed to try and impose a price cap on Russian oil, to try and curb Russia's revenues.

Bill Farren-Price, head of global oil and gas macro research at consultancy Enverus, said: "This [production cuts] is clearly a pre-emptive move aimed at stopping oil prices falling further if we head into the depths of recession.

“Saudi Arabia has sided very clearly with Russia in seeking to tighten oil markets just as European sanctions are about to hit Russian oil exports.

"That will not be received well by Western countries who oppose Russia's invasion of Ukraine.

"The Saudis always make a big point of trying to disassociate oil policy and oil market management from geopolitics, but they have put themselves right at the heart of geopolitics by making this decision, and they are going to have to bear the consequences of that."

It comes despite calls from the US and others to pump more to try and keep down oil prices, which have cooled to around $90 (£80) amid recession fears, after reaching $120 three months ago.

US President Joe Biden’s administration had welcomed the fall in prices, and is believed to have pushed Opec not to proceed with the cuts.

Any increase in prices could damage the Democrats’ chances in the US congressional elections on Nov 8, as households grapple with wider cost of living pressures.

Mr Farren-Price added: "The US has been very clear to the Saudis and the UAE that they wanted OPEC to hold off from taking any action that could raise oil prices at a sensitive time for the Whitehouse ahead of the mid-terms. And they have clearly ignored that request.

"So it's going to be interesting to see whether the US responds to that.”

The price of Brent Crude climbed almost 1pc on the move to $92.70, having started rising at the end of September amid expectations of the cuts. Responding to the cuts, White House spokesman John Kirby said the US needed to be less dependent on foreign producers of oil. JP Morgan and others believe the US may respond by releasing more oil stocks.

Oil prices surged following Russia’s invasion of Ukraine in February, amid disruption to supplies from one of the world’s largest producers.

Washington and Europe want to avoid Moscow being able to fill its war chest with oil profits. Washington has banned imports of Russian oil, while Europe will block the bulk of its oil purchases from Russia by the end of the year. Brent Crude hit highs of $127 in March, although it has fallen back to roughly where they were just before the invasion. Gloomy trade data from China has added to concerns about recessions.

Opec is made up of oil exporters including Saudi Arabia, the United Arab Emirates and Libya, with Russia included when the Opec+ coalition was formed in 2016.

Suhail Al Mazroui, energy minister for the UAE, said the coalition’s decision on output was “technical, not political”. He added: “We will not use it as a political organisation.” Alexander Novak, Russia’s deputy prime minister, also attended the Opec meeting in Vienna.

While the headline cut is large, several countries are thought to be already producing less than allowed under their quotas. Goldman Sachs analysts said they estimated the real production cuts would, therefore, amount to 400,000-600,000 barrels per day, while analysts at Jefferies put this at 900,000 bpd.

It is expected this will be borne mainly by core Opec producers such as Saudi Arabia, Iraq, the United Arab Emirates and Kuwait.

Saudi Arabia and other Opec members have said they are trying to prevent volatility in the market, rather than targeting a particular price.

Antony Blinken, the US secretary of state, said yesterday the administration was “working every single day” to keep energy prices down.