Wednesday 5 October 2022 04:48 PM Saudi Arabia backs Putin as OPEC+ agrees to cut oil production by TWO MILLION ... trends now
Saudi Arabia has shocked Europe as OPEC+ agreed to cut oil production by two million barrels a day today after a face-to-face meeting between energy ministers in Vienna that will have Vladimir Putin purring.
The move will bolster Kremlin finances and help Putin weather a looming European ban on oil imports, driving up fuel prices worldwide just as winter is looming.
It will also further aggravate inflation which has reached decades-high levels in many countries and hurt European households already struggling with sky-high energy bills.
The alliance also said it was renewing its cooperation between members of the OPEC cartel and non-members, the most significant of which is Russia. The deal was to expire at year's end.
Besides a token trim in oil production last month, the major cut is an abrupt turnaround from months of restoring deep cuts made during the depths of the pandemic.
The oil supply could face further cutbacks in coming months when the European ban on most Russian imports takes effect in December.
Saudi Arabia and Russia came to an agreement today to cut two million barrels in oil production a day to cause a huge price surge, leading to pain for European households and industry and glee for Putin and the Kremlin's coffers
The 13-nation OPEC cartel and its 10 Russian-led allies of oil-exporting countries will debate a cut of up to two million barrels a day
In a statement, OPEC+ said the decision was based on the 'uncertainty that surrounds the global economic and oil market outlooks.'
The impact of the production cut on oil prices - and thus the price of gasoline made from crude - will be limited somewhat because OPEC+ members are already unable to meet the quotas set by the group.
A separate move by the U.S. and other members of the G7 to impose a price cap on Russian oil could reduce supply if Russia retaliates by refusing to ship to countries and companies that observe the cap.
The EU agreed Wednesday on new sanctions that are expected to include a price cap on Russian oil.
Russia 'will need to find new buyers for its oil when the EU embargo comes into force in early December and will presumably have to make further price concessions to do so,' analysts at Commerzbank wrote in a note.
'Higher prices beforehand - boosted by production cuts elsewhere - would therefore doubtless be very welcome.'
A view shows the Alexander Zhagrin oilfield operated by Gazprom Neft in Khanty-Mansi Autonomous Area, Russia
A production cut could benefit Russia by establishing higher prices ahead of a European Union ban on most Russian oil imports, a sanction over the invasion of Ukraine that takes effect at the end of the year, Commerzbank analysts add.
Oil prices surged this summer as markets worried about the loss of Russian supplies from sanctions over the war in Ukraine, but they slipped as fears about recessions in major economies and China's COVID-19 restrictions weighed on demand for crude.
The fall in oil prices has been a boon to US drivers, who saw lower gasoline prices at the pump before costs recently started ticking up, and for President Joe Biden as his Democratic Party gears up for congressional elections next month.
It's unclear how much impact a production cut would have on oil prices - and thus gasoline prices - because members are already unable to meet the quotas set by OPEC+.
Yet Saudi Arabia may be unwilling to strain its relationship with Russia even if the world's largest oil exporter had any reservations about cutbacks and has recently has drawn leaders from Biden to German Chancellor Olaf Scholz to talk about energy supplies.
The Commerzbank analysts said a small trim would likely see oil prices