The OPEC+ decision was an unpleasant surprise for the administration of US President Joe Biden. They hoped to the last that the leader of the cartel, Saudi Arabia, would not agree to a sharp reduction in oil production, but, on the contrary, would help stabilize the situation on the oil market, especially against the backdrop of the introduction of a mechanism for limiting prices for Russian oil. Riyadh's decision to cut production was perceived by Washington as direct support for Russia and Vladimir Putin and an attempt to offend Joe Biden, Bloomberg notes .
“It is clear that today’s OPEC+ statement supports Russia,” said White House press secretary Karine Jean-Pierre.
Officially, OPEC + claims that the reduction is necessary to maintain a balance in the market, however, the market considered otherwise and reacted with an increase in oil prices by 10% compared to last week's lows. Moreover, following the OPEC+ decision, the largest investment companies began to revise their forecasts for oil prices by the end of 2022, and analysts began to raise their cost estimates. Saudi Arabia's state oil company, Saudi Aramco, announced an increase in selling prices for its oil in the United States and lowered them for Europe.
Damien Curvalin of Goldman Sachs Group expects that if OPEC + quotas are maintained for the whole of 2023, oil prices could add about $25 per barrel. However, he expects an even bigger rally in oil prices if current stocks begin to run low and the market becomes in short supply again. Bloomberg notes that Riyadh's decision is a response to Biden's promise to turn the kingdom into a "rogue". The OPEC + decision will allow Russia to increase its oil revenues – thus, Riyadh actually helped Russia in its difficult economic situation.
“This contraction was driven by geopolitics, not just market factors. OPEC+ opposes efforts by oil importers to create a market that would include limiting the price of Russian oil and coordinated actions by buyers. It's a risky move," says Ben Cahill, senior fellow at the Center for Strategic and International Studies.
Analysts believe the Saudi decision is linked to the echoes of the murder of opposition journalist Jamal Khashoggi and the US response to it. Even during Biden's summer visit to Riyadh, where he met with Saudi Crown Prince Mohammed bin Salman, it was not possible to smooth things over. No breakthrough was achieved at that meeting, nor was it achieved by US officials who, on the eve of the OPEC+ meeting, tried to convince Saudi Arabia, the United Arab Emirates and Kuwait to abandon the sharp cuts. However, the members of the cartel decided otherwise and agreed to a record production cut since 2020.