OPEC+ heads for deep supply cuts, clashes with US

VIENNA/LONDON, Oct 5 (Reuters) – OPEC+ appears poised to drastically cut its oil production targets when it meets on Wednesday, limiting supply in an already tight market despite pressure from the United States and others to pump more.

The potential OPEC+ cut could spur a recovery in oil prices which fell to around $90 from $120 three months ago on fears of a global economic recession, rising US interest rates and a stronger dollar.

OPEC+, which includes Saudi Arabia and Russia, is working on cuts of 1-2 million barrels a day, sources told Reuters, with several sources saying cuts could be closer to 2 million.

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The United States is pushing OPEC not to make the cuts on the grounds that the fundamentals do not support them, a source familiar with the matter said. Read more

Sources said it was unclear if the cuts could include additional voluntary cuts by members such as Saudi Arabia or if the cuts could include the group’s existing underproduction.

OPEC+ fell about 3.6 million bpd below its production target in August.

WASHINGTON REACTION

“Rising oil prices, if driven by significant production cuts,

would likely irritate the Biden administration ahead of the U.S. midterm elections,” Citi analysts said in a note.

“There could be other policy reactions from the United States, including additional releases of strategic stocks as well as some wildcards, including pushing for a NOPEC bill,” Citi said, referring to a US anti-trust bill against OPEC.

JP Morgan also said it expected Washington to put in place countermeasures by releasing more oil inventories.

Saudi Arabia and other members of OPEC+ – which groups the Organization of the Petroleum Exporting Countries and other producers, including Russia – said they were looking to prevent volatility rather than target a particular oil price. Read more

Benchmark Brent crude traded below $92 a barrel on Wednesday after rising on Tuesday.

The West has accused Russia of weaponizing energy, creating a crisis in Europe that could trigger gas and electricity rationing this winter.

Moscow accuses the West of weaponizing the dollar and financial systems such as SWIFT in retaliation for sending Russian troops to Ukraine in February. The West accuses Moscow of invading Ukraine while Russia calls it a special military operation.

Part of the reason Washington wants to lower oil prices is to deprive Moscow of oil revenue when Saudi Arabia has not condemned Moscow’s actions.

Relations have been strained between the kingdom and the Biden administration, which visited Riyadh this year but failed to secure firm co-operation commitments on energy.

“The decision is technical, not political,” UAE Energy Minister Suhail al-Mazroui told reporters.

“We won’t use it as a political organization,” he said, adding that concerns about a global recession would be one of the key topics.

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Editing by David Gregorio and Jason Neely

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