Despite repeated pleas from the United States that the Organization of the Petroleum Exporting Countries (OPEC), part of in fact The leadership of Saudi Arabia, should not have collectively cut crude oil production at last week’s meeting that they did. The White House has made it clear that cutting crude oil production and the consequent rise in oil prices will lead to three outcomes that it considers particularly dangerous for the world right now. First, it will add further impetus to the rise in energy prices which has led to global inflation that has driven rising interest rates around the world that are holding back economic growth. Second, it will significantly boost the state budget revenues of Russia, as a major exporter of crude oil and gas, enabling its illegal invasion of Ukraine to continue for longer. thanks to that funding, causing more loss of life and increasing the likelihood of escalation into global nuclear war. And third, it increases the likelihood that incumbent US President Joe Biden will underperform in the midterm elections in November, making his government less able to deal effectively with security challenges. security led by Russia and China that the world will face. for the remainder of his presidency.
Heedless of these calls from the US, and echoed by major European countries, OPEC, under the direction of Saudi Arabia, cut its overall crude production by two million barrels per day (bpd). Market expectations are for a possible cut of about a million bpd, with a very distant possibility of one and a half million bpd, if OPEC decides to ignore any argument by its Western allies about a cut. However, the latest cut is the largest crude oil production drop since a 9.7 million bpd drop in May 2020, made expressly to rescue oil prices from a one-off threat. in life caused them at the height of Covid-19. pandemic. The most recent two million bpd cut is expected to last for 14 months, until December 2023.
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The immediate impact on crude prices of the cut isn’t as severe as some feared, but it could actually be severe, as it coincides with two other market factors that Saudi Arabia has know exacly. The first of these is the long-term program to release one million barrels of crude oil from the US Strategic Petroleum Reserve (SPR) – starting with the specific intention of the White House itself to lower oil prices to relieve pressure. inflationary. in the West – expected to end this month. The second of these is a ban on Russian crude oil imports by sea slated to take effect on December 5, while the G7 group of major industrialized nations is also considering the mechanism. put a price ceiling on Russia. energy export.
Besides knowing the enormous upward pressure that this historically massive supply cut will have on global oil prices, Saudi Arabia is also fully aware of the political implications of the move. cuts for the US, for Europe and Russia, according to several sources in Washington and Brussels are exclusively talking with OilPrice.com last week. A senior EU energy source said: “Senior EU energy security figures have sent to leading OPEC countries that the current cut in crude oil production could be catastrophic for a Several proposed EU energy policies related to Russian oil and gas sanctions, but these were ignored. “The most senior figures in the Saudi government, including [Crown Prince Mohammed bin] Salman, also knows exactly what these cuts and continued high energy prices mean for [President Joe] Biden in his midterm elections,” he added. “The White House views this OPEC cut as direct comment from the top leadership of Saudi Arabia on what they think of the president, our democratic progress, and our position with the United States. allies against Russia’s aggression into Ukraine,” a senior energy source in Washington told OilPrice.com last week.
As marked in all three my book on oil field Since 2015, there is a very clear link between oil and gas prices, the US economy and the chances of being re-elected to the US president. Historical precedent emphasizes that every US$10/barrel change in the price of crude oil results in a 25-30% change in the price of a gallon of gasoline, although recently this correlation has become even stronger. more harshly. The age-old rule of thumb is for everyone a penny that the average price of gasoline in the United States increased, more than US$1 billion per year in additional discretionary consumer spending is lost. It is a matter of historical fact, as shown in my new book on the global oil market, that since World War I, the incumbent US president would have won re-election 11 times out of 11 if the US economy hadn’t been in recession within two years of the upcoming election. However, presidents who campaigned for re-election in the face of an economic downturn have won only once out of seven (Calvin Coolidge in 1924, although strictly speaking he did not win the previous election). but rather came to power over the death in the office of Warren G Harding). US economy hit 0.6% quarterly QoQ (qoq) in Q2 2022, confirming the economy entered a technical recession, following a 1.6% QoQ contraction five. Ahead of the pivotal midterm elections in November, President Biden faces not only a recession but also the prospect of severe vote loss in the US stock and housing markets.
Saudi Arabia’s core geopolitical alignment away from the US and towards Russia began in earnest in late 2016 when Kremlin joins support OPEC was then seen as being looked down upon at the end of the 2014-2016 Oil Price War. Back in October 2021, the meeting between the Deputy Prime Minister of Russia, Alexander Novak and the Minister of Energy of Saudi Arabia, Prince Abdulaziz bin Salman, to discuss the expansion and deepening of cooperation between the two countries in the energy sector and others marked another confirmation of Moscow’s ongoing efforts to definitively separate the Kingdom from its longtime ally the United States This was later demonstrated by further meeting between the two figures to agree on some major joint projects and Saudi Arabia’s unwillingness to condemn Russia’s aggression in Ukraine or even engage with President Biden in driving oil and gas prices down. Saudi Arabia’s move towards China also begins in earnest when offer to save Salman’s face during Saudi Aramco’s disastrous initial public offering in 2017. Again, this was later bolstered with a series of deals aimed at raising China holds Saudi Arabia’s energy supply and Saudi Arabia stands ready to support China’s efforts to undermine the hegemony of the US dollar in world energy markets.
Thus, Saudi Arabia’s latest move to cut crude oil production, despite the United States’ pleas not to do so, shouldn’t have surprised Washington, but it did, and they are angry that it that it was a direct attack on this country, and it was true. , it was. Initially, US officials condemned the decision as ‘short-sighted’ but later White House National Security Adviser Jake Sullivan and Director of the National Economic Council, Brian Deese, called it right. as such, said in a joint statement: “At a time when maintaining the global energy supply is paramount, this decision will have the most negative impact on low-income countries. and the capital average is reeling from soaring energy prices.”
They added that the Biden administration would consult with Congress on potential measures that would attack OPEC’s control of oil prices, and this would include resuscitation. ‘No Oil Production or Export’ Bill (NOPEC) that would allow the producer to be sued in US courts for antitrust violations and could see the dissolution of Saudi Aramco and reduce its value to zero. The NOPEC Bill has been approved by the Commission. The Senate Judiciary Committee passed it in May, passed a House committee last year. Senate Majority Leader and Democrat Chuck Schumer stated shortly after the latest crude production cut announcement: “What Saudi Arabia has done to help [Russian President Vladimir] Putin continues to wage a cruel, vile war against Ukraine that will be remembered by Americans for a long time… We are looking at all the legislative tools to best deal with this appalling and nostalgic act. this profound doubt, including the NOPEC bill. Then, and pointing to party support for a new aggressive approach to Saudi Arabia, Republican Senator Chuck Grassley, an original sponsor of the NOPEC bill, said he would attach the measure as an amendment to the upcoming National Defense Authorization Act.
By Simon Watkins for Oilprice.com
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