OPEC Supply Cuts Anger Western Leaders As Oil Prices Rise Yet Again

But the Oil & Gas Association blames Biden for OPEC's influence in the U.S.: File Image/Pixabay

The oil price rally continued for a third straight day on Wednesday as the Organization of the Petroleum Exporting Countries (OPEC) lived up to analytical expectations and ordered the largest supply cut since 2020, on the order of 2 million barrels per day (bpd).

West Texas Intermediate for November delivery rose $1.24 to settle at $87.76, while Brent for December settlement gained $1.57 to $93.37.

According to the Saudi Arabia energy minister's department, several OPEC members are already pumping well below their quotas, so the real impact of the cuts will likely be around 1 million to 1.1 million bpd.

The mainstream media's take on OPEC's motivation to enact so deep a cut is that the cartel is concerned about the outlook for energy demand in the face of rapidly tightening monetary policies.

However, Timipre Sylva, oil minister for Nigeria, offered the boldest explanation thus far of why the cartel was so determined to impose additional output cuts: he told Bloomberg that OPEC was concerned that the drop in oil prices from highs in excess of $100 per barrel were adversely affecting the budgets of some of its members.

Whatever the reason, news of the output slash caused havoc in Washington: "It's clear that OPEC+ is aligning with Russia with today's announcement," White House press secretary Karine Jean-Pierre told media.

National Security Adviser Jake Sullivan hinted at the potential for further releases from the Strategic Petroleum Reserve (just 24 hours after Jean-Pierre said that was not a consideration); and lawmakers revived the "No Oil Producing and Exporting Cartels Act" that would allow the U.S. government to sue members of OPEC for manipulating the energy market.

But perhaps recalling the heady days of energy independence during the previous White House administration, the U.S. Oil & Gas Association criticized president Joe Biden for having no other options to counter rising gas prices than to turn to the oil industry he has persistently attacked.

The association noted that domestic oil prices began to climb upward during Biden's first days in office, after he used executive orders to cancel the Keystone XL pipeline and paused oil and gas leases on federal lands.

For his part, OPEC secretary-general Haitham Al Ghais defended the output cuts, saying his organization intended to provide "security [and] stability to the energy markets."

Meanwhile, oil was also supported on Wednesday by an Energy Information Administration report showing that U.S. crude inventories fell 1.36 million barrels in their biggest drop since August, while gasoline inventories also dipped to their lowest level since November 2014.

This caused Damien Courvalin, head of energy research at Goldman Sachs, to remark, "Despite macro concerns, oil consumption has proved resilient so far and will increase more than seasonally into winter as the global gas shortage pushed demand toward oil, the cheapest source of energy currently."