Oct. 14, 2022, 11:10 a.m. ET

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In a rebuke to the West, OPEC and Russia agree to a big cut in oil production.

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A refinery in Italy owned by Lukoil, the Russian oil company. The European Union is seeking to curb the revenue that Russia earns from oil sales. Credit...Gianni Cipriano for The New York Times

Saudi Arabia and Russia, acting as leaders of the OPEC Plus energy cartel, agreed on Wednesday to their first large production cut in more than two years in a bid to raise prices, countering efforts by the United States and Europe to choke off the enormous revenue that Moscow reaps from the sale of crude.

President Biden and European leaders have urged more oil production to ease gasoline prices and punish Moscow for its aggression in Ukraine. Vladimir V. Putin, the Russian president, has been accused of using energy as a weapon against countries opposing its invasion of Ukraine, and the optics of the decision could not be missed.

The White House was not happy. “The president is disappointed by the shortsighted decision by OPEC Plus to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine,” Brian Deese, the director of the National Economic Council, and Jake Sullivan, the national security adviser, said in a statement.

The cut of two million barrels a day represents about 2 percent of global oil production.

By reducing output, OPEC Plus was also seeking to make a statement to energy markets about the group’s cohesion during the Ukraine war and its willingness to act quickly to defend prices, analysts say.

At a news conference after the meeting, the Saudi energy minister, Prince Abdulaziz bin Salman, said OPEC Plus was acting amid signs of a downturn in the world economy that might cause demand for oil to weaken and prices to fall.

“We would rather be pre-emptive than be sorry,” he said.

The move appeared to have the desired result: The price of Brent crude, the international benchmark, which had slumped during the summer, rose more than 1.5 percent after the meeting, extending the gains recorded in recent days and bringing prices back to levels last seen in mid-September. The average price of gasoline in the United States recently began to rise again, tracking the price of oil.

In response to the OPEC Plus announcement, Biden administration officials said the president would order the Energy Department to release 10 million additional barrels of oil from the Strategic Petroleum Reserve in November. Earlier this week, the administration said it had no plans to extend a six-month effort to release one million barrels a day, which was scheduled to finish at the end of this month.

Hours before the OPEC Plus meeting, the European Union pushed ahead with an ambitious plan promoted by the Biden administration to cap the price of Russian oil, in coordination with Group of 7 nations and others.

The European Union cap is intended to set the price of Russian oil lower than where it is today but still above the cost of producing it. The U.S. Treasury Department estimates that the program could deprive the Kremlin of tens of billions of dollars annually. But some analysts say the cap would make the logistics of the oil trade more difficult, driving prices higher. And it relies on the participation of non-E.U. nations that are still buying Russian oil.

In China, one of the biggest consumers of Russian oil this year, the foreign ministry has criticized the concept, warning last month that oil is too important to the global economy to be subject to the planned price controls.

“Oil is a global commodity — ensuring global energy supply security is vitally important,” Mao Ning, a foreign ministry spokeswoman, said on Sept. 5.

And the European Union proposal, aimed at pushing down prices, would seem to compete against OPEC Plus’s action to seek to raise oil prices.

But there is uncertainty about how deep the cut in oil production will go. Because of a lack of investment, most members of OPEC Plus regularly fall short of their production quotas and will not need to trim production much if at all. Richard Bronze, the head of geopolitics at Energy Aspects, a research firm, estimates that the actual cut will be only about one million barrels a day.

And the weakening global economy could undermine the Russian and Saudi-led effort to drive up prices. As economic growth slows, demand for oil would slacken.

Wednesday’s meeting was in person, at the headquarters of the Organization of the Petroleum Exporting Countries in Vienna, for the first time since March 2020 — a sign of the significance of the announcement. Among those attending was Russia’s deputy prime minister, Alexander Novak, who has played a key role in fostering cooperation with other major oil-producing countries.

The presence of Mr. Novak, who is subject to U.S. sanctions, could come as an embarrassment to officials in Europe when their citizens face what could be a tough winter because of higher energy prices linked to Russia’s war in Ukraine.

The production cut by OPEC Plus is a major turnabout in the approach of the 23-member group. After a deep reduction in output in the early days of the pandemic, the group gradually restored production over the next two years. Recently, though, Prince Abdulaziz, who chairs OPEC Plus with Mr. Novak, began to shift the group’s direction as prices came under pressure.

Last month, the group signaled concerns about the markets with a nominal cut of 100,000 barrels a day. When markets shrugged off that move and oil prices slipped below $80 a barrel for West Texas Intermediate, the American benchmark, the Saudis appear to have decided that a much bolder signal was required.

Analysts said the increasing intervention in the markets by Washington and the European Union, such as the move to set a price cap for Russian oil, might be pushing OPEC Plus into more aggressive moves. Russia wants a higher price to offset the steep discounts it has had to give to sell its oil.

Some oil producers may see the price cap as a precedent that “might be an attempt to drive down prices more generally,” Mr. Bronze said. Such worries may explain why OPEC Plus “is willing to take such a big step and one that will be so unpopular in Washington,” he added.

At the news conference, Prince Abdulaziz denied any collusion with Russia, portraying OPEC Plus as a “band of brothers” interested only in preserving the stability of markets. “Where is the act of belligerence?” he asked.

At one point he instructed an assistant to display a chart showing that crude oil has edged up in price only by a single-digit percentage since January, before Russia invaded Ukraine, while the prices of other energy sources, like natural gas in Europe and coal, have soared.

The group also agreed to extend for one year the agreement that created OPEC Plus, a combination of OPEC with Russia and its allies. The alliance, which started in 2016, had been scheduled to expire in December.

In the push for higher oil prices, the Kremlin may be using OPEC’s de facto leader, Saudi Arabia, whose leaders want future cooperation from Moscow on energy matters, to make it more costly for the West to take measures against Russia.

“To the extent that prices rise, it will make it that much more challenging for Europe to proceed with its sanctions on Russian oil in December,” said Bhushan Bahree, an executive director of S&P Global Commodity Insights.

Jim Tankersley contributed reporting from Atlanta, Keith Bradsher from Beijing, and Matina Stevis-Gridneff from Brussels.

Biden releases more reserve oil and pushes companies to keep up production.

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OPEC members led by Saudi Arabia and its 10 allied members headed by Russia will meet in Vienna for the first time since spring 2020.Credit...Joe Klamar/Agence France-Presse — Getty Images

Biden administration officials have spent more than a week in discussions with their counterparts from oil-producing countries in the Middle East, seeking to minimize production cuts by OPEC Plus, the group led by Saudi Arabia, in an effort to keep global oil prices from rising drastically.

On Wednesday, OPEC Plus announced a production cut of two million barrels a day.

The engagement ahead of the latest meeting of OPEC Plus included outreach by top officials from the State Department, Treasury Department and the National Security Council. Officials familiar with the calls say the efforts have not been a departure from the administration’s efforts over the past year to push oil producers to keep production levels high after Russia’s invasion of Ukraine, which has roiled global markets.

“We are always talking to all producers and consumers, including OPEC Plus partners,” said Adrienne Watson, a spokeswoman for the National Security Council. “That’s been the case for decades and across bipartisan administrations, including this one. We’ve been clear that energy supply should meet demand to support economic growth and lower prices for consumers around the world, and we will continue to talk with our partners about that.”

The administration officials have been reminding their counterparts that the United States plans to boost global oil demand in the near future by purchasing oil at fixed prices in order to refill the nation’s Strategic Petroleum Reserve. Mr. Biden began releasing one million barrels per day from the reserve in March in an effort to boost oil supplies and limit prices.

Refilling the reserve could eventually help stabilize oil demand and pad revenues for large oil-producing countries. The Energy Department proposed a regulation this summer that would allow the government to enter contracts to refill the reserve at fixed prices in the future. That effort could help boost oil production, administration officials say, because it would give oil producers reassurance that they will be able to sell crude at a set rate even if global oil prices dip again.

But in the meantime, the administration responded to the OPEC Plus announcement on Wednesday by saying it would order the release of 10 million additional barrels from the reserve in November. The releases had been scheduled to finish this month.

“The president will continue to direct S.P.R. releases as appropriate to protect American consumers and promote energy security, and he is directing the Secretary of Energy to explore any additional responsible actions to continue increasing domestic production in the immediate term,” said Brian Deese, the director of the National Economic Council, and Jake Sullivan, the National Security Adviser, in a joint statement.

The discussions — and the decisions by global oil producers — come at a fragile time for global oil markets and for Mr. Biden’s domestic political calculations. After falling through the summer, global crude prices have begun to tick up again. So have gasoline prices across the United States, dampening what had been a favorite bragging point for Mr. Biden in recent months.

But as central banks around the world raise interest rates aggressively to choke off high inflation, fears of a global recession are mounting. That could sap oil demand and send prices plunging, hurting large oil producers. Conversely, prices could soar at year’s end if a new round of European sanctions knocks millions of barrels of Russian oil off the global market each day — which is why administration officials and their allies have pushed an untested plan to allow Russian oil to continue to flow to the market, but only be sold at a reduced price.

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Blinken says the U.S. has ‘made clear’ its views on oil production cuts.

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Secretary of State Antony J Blinken declined to criticize Saudi Arabia after the oil cartel OPEC Plus pledged to reduce output by two million barrels a day, but said that the United States has “made clear” its views on the cuts.CreditCredit...Martin Bernetti/Agence France-Presse — Getty Images

Secretary of State Antony J. Blinken offered a muted reaction to the decision on Wednesday by OPEC Plus to cut oil production by two million barrels a day and declined to criticize the government of Saudi Arabia for supporting the reduction.

“We’ve made clear our views to OPEC members,” Mr. Blinken said at a news conference during a visit to Santiago, Chile.

Mr. Blinken argued that Biden administration policies have brought down oil prices in recent months, pointing to an increase in U.S. oil production and the use of the Strategic Petroleum Reserve.

“We are working every single day to make sure, to the best of our ability, that energy supply from wherever is actually meeting demand in order to ensure that energy is on the market and that prices are kept low,” he said.

Mr. Blinken added that President Biden’s July visit to Saudi Arabia, which the president justified in part by the need to control global energy prices, had several other goals, including regional relationships and striking a cease-fire agreement in Yemen.

“We have a multiplicity of interests with regard to Saudi Arabia,” he said.

U.S. gasoline prices follow crude oil higher.

U.S. retail price of regular gasoline

Source: E.I.A.

By The New York Times

Gas prices rose again on Wednesday, adding to a streak of gains that’s been propelled by the turnaround in crude oil prices after a long period of decline over the summer.

The national average gas price stood at $3.83 a gallon on Wednesday, 16 cents higher than two weeks ago, when gas bottomed out after a 98-day streak of declines. The price at the pump is still far below the June high of just over $5 a gallon, but remains higher than it was a year ago.

Gas prices have been one of the main forces bringing down stubbornly high inflation in recent months. The summer drop offered some relief for American consumers squeezed by inflation, and for the Federal Reserve in its attempt to tame high prices by raising interest rates.

Gas prices are tied to oil prices because oil is one of the key components of gasoline. The price of West Texas Intermediate crude oil, the U.S. benchmark, has gained more than 10 percent since late September, when it dipped below $80 a barrel for the first time since January. Crude oil topped out above $120 a barrel after Russia’s invasion of Ukraine.

Falling gas prices were seen as a political win for President Biden, who had reprimanded large energy companies for what he described as profiteering. Mr. Biden also released oil from the U.S. strategic reserves and pressured Saudi Arabia and its oil-producing allies to continue pumping crude. But on Wednesday, the group known as OPEC Plus, which includes Saudi Arabia and Russia, announced a production cut of two million barrels per day.

Corrections were made on 
Oct. 7, 2022

An earlier version of this briefing item misstated the streak of gains for gas prices. They rose 14 of the 15 days through Wednesday, not 15 consecutive days.

How we handle corrections

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Why Saudi Arabia and Russia may find their oil pricing power limited.

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An oil terminal at the Saudi seaport of Ras Tanura. Over most of the year, the Biden administration has, with limited success, urged Persian Gulf countries to pump more oil.Credit...Christophe Viseux for The New York Times

The cut in oil production by Saudi Arabia and other leading oil-exporting countries like Russia may amount to little more than symbolism, given countervailing forces in the global oil market, Clifford Krauss writes for The New York Times.

Global inventories and spare capacity are considered to be well below the levels that would assure price stability. And by early next year, European sanctions over Russia’s invasion of Ukraine are intended to tighten, in a bid to curb Russian oil sales.

Given those circumstances, the cutback by the group known as OPEC Plus would ordinarily push up the price of oil. But now, a decrease in supply coincides with a few crucial factors:

  • Demand has fallen in China, which has continued to lock down once-bustling cities to stop the spread of the coronavirus.

  • The price of Russian oil is under pressure not only by a slowing economy but also by increased oil production in the United States, Guyana, Brazil and other countries.

  • Unable to prod the Saudis to produce more, the United States has released about 160 million barrels of crude from its strategic reserve since March, and could be provoked to release more.

The E.U.’s plan faces a new hurdle, as oil producers led by Saudi Arabia aim to keep global prices high.

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A crude oil terminal near the port city of Nakhodka, Russia. With oil prices at a high, Russia is raking in billions of dollars in revenue, even as it sells smaller quantities. Credit...Tatiana Meel/Reuters

BRUSSELS — The European Union was pushing ahead with an ambitious plan to limit Russia’s oil revenue, but the Western effort to drain funding from President Vladimir V. Putin’s war machine faced a new hurdle: Global oil producers on Wednesday decided to sharply cut the supply, making Russia’s crude even more valuable on the world market.

OPEC and its allies, including Russia, announced a sharp reduction in crude output at a meeting in Vienna. By reducing supply, the decision by the group known as OPEC Plus, led by Saudi Arabia, was likely to keep global oil prices high, allowing Russia to continue earning significant revenue from its crude exports.

It also could lessen the chances that other major buyers of Russian oil, notably China and India, will go along with the price cap. Without those countries’ cooperation, the price cap plan, championed by the Biden administration, would have far less impact.

The E.U. price cap was expected to gain final approval on Thursday, after negotiators reached an agreement late Tuesday on the measure as part of a fresh package of sanctions against Moscow.

Under the plan, a committee of representatives of the European Union, the Group of 7 nations and others that agree to the price cap would meet regularly to decide on the price at which Russian oil should be sold, and that it would change based on the market price.

Several diplomats involved in the E.U. talks said that Greece, Malta and Cyprus — maritime nations that would be most affected by the price cap — received assurances that the would be permitted to continue shipping Russian oil, the diplomats said.

Those countries had been holding up what would be the eighth package of sanctions the European Union has adopted since the Russian invasion of Ukraine because of worries that a price cap on Russian oil exported outside the bloc would affect their shipping, insurance and other industries, the diplomats said.

The cap — part of a broad plan pushed by the Biden administration that the G7 agreed to last month — is intended to set the price of Russian oil lower than where it is today, but still above cost. The U.S. Treasury calculates that the cap would deprive the Kremlin of tens of billions of dollars annually.

To cut Russian revenue, the United States, Europe and their allies would need to convince India and China, which buy substantial quantities of Russian oil, to purchase it only at the agreed upon price. Experts say that even with willing partners, the cap could be hard to implement.

Under the new rules, companies involved in the shipping of Russian oil — including shipowners, insurers and underwriters — would be on the hook for ensuring that the oil they are helping to transport is being sold at or below the price cap. If they are caught helping Russia sell at a higher price, they could face lawsuits in their home countries for violating sanctions.

Russian crude will come under an embargo in most of the European Union on Dec. 5, and petroleum products will follow in February. The price cap on shipments to other countries has been championed by U.S. Treasury Secretary Janet Yellen as a necessary complement to the European oil embargo.

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Stock market wobbles after back-to-back gains.

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Stocks wavered on Wednesday after a fierce rally earlier in the week, though the S&P 500 recovered from its sharpest drop of the day.

The index was unchanged in late afternoon trading, after falling more than 1.5 percent earlier. On Tuesday, the index rose 3.1 percent, marking a second day of gains of over 2.5 percent for the first time since 2008. But the benchmark index remains down over 20 percent this year.

Market moves have reflected investors’ concerns about a recession and the role that the Federal Reserve’s campaign to rein in inflation by raising interest rates could have on cooling the economy. Gasoline prices, one of the key factors that has brought inflation down slightly in recent months, have started to rise again as oil prices increased on expectations that the OPEC Plus group of oil-producing nations would slash production.

Official word that OPEC and its allies including Russia approved an oil production cut of two million barrels a day sent oil prices higher on Wednesday.

The price of West Texas Intermediate crude oil rose 1.4 percent to around $88 a barrel, continuing the previous day’s gains. The price of Brent crude oil, the global benchmark, rose about 2 percent to above $93 a barrel.

Europe’s Stoxx 600 fell more than 1 percent and Britain’s FTSE 100 lost 0.5 percent. In Asia, Japan’s Nikkei 225 closed with a gain of 0.5 percent and Hong Kong’s Hang Seng rose nearly 6 percent.

Marvin Loh, senior global macro strategist at State Street, said that it was “too early” for a sustained rally in equity markets but that near-term uncertainty could lead to more volatile trading and more frequent, short-lived bear market rallies.

“The market wants to believe,” Mr. Loh said. “There still is money on the sidelines waiting for an opportunity. But we just don’t have clarity yet.”

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