Sunday’s move comes after the group sparked a diplomatic firestorm at its last meeting in October, when it agreed to cut output by 2 million barrels per day. The move drew a sharp rebuke from the White House and a pledge from President Biden to impose “consequences” on Saudi Arabia, the organization’s most powerful member.
But predictions that cuts in October would send gas prices soaring and generate an infusion of new money for Russia to bankroll its war on Ukraine proved wrong. Just weeks after the consortium announced the cut, oil prices began to fall. Petrol now costs less than it has in nine months, with consumers paying lower prices than they did just before Russia began its invasion.
U.S. gas prices fall toward $3 a gallon as demand falls worldwide
On Sunday, the average price of a gallon of regular gas in the United States was $3.41, according to AAA, down sharply from June’s high of more than $5.
The falling prices of oil and gas are largely driven by a fall in demand amid fears of a global recession, new covid shutdowns in China and the effects of rising interest rates in the US. Meanwhile, some key US oil refineries that were down for maintenance and repairs have come back online, boosting world fuel supplies.
All these forces have put OPEC Plus in a difficult situation. The group’s leader, Saudi Arabia, was under pressure from the United States to either increase output or at least block further output cuts. But the current market conditions of falling prices have justified the reductions advocated by the Saudis in October, despite the diplomatic furor they sparked.
The organization said in a statement on Sunday that the October cut was “purely driven by market considerations and recognized in retrospect by market participants to have been the necessary and appropriate action to stabilize the global oil market.”
The next OPEC Plus meeting to review production is set for June. But the group said in its statement that the schedule is subject to change, and it can “meet at any time and take immediate additional measures to address market developments and support the balance of the oil market and its stability if necessary.”
In the backdrop of internal OPEC Plus deliberations this weekend was an agreement reached on Friday between Ukraine’s allies to impose a ceiling on the price of Russian oil. The tariff, set by the Group of Seven nations and Australia, is intended to keep Russian oil flowing into some global markets but limit the amount of profit the Kremlin can capture to fund its war machine.
Countries are implementing the price cap just as a European ban on imports of Russian oil starts on Monday. Because that ban does not apply to other parts of the world that still buy from Russia, the price cap is seen as an additional tool to limit Russia’s oil revenues. Europe and the US will enforce the measure by using their significant control over petroleum shipping companies and the companies that provide them with insurance.
OPEC Plus closely followed European deliberations on the price ceiling, as it poses a direct threat to control of the oil markets. The summit essentially acts as a “buyers’ cartel” where countries come together to influence the price that oil producers can charge.
“An institutionalized buyers’ cartel could threaten to erode OPEC+ pricing power,” research firm ClearView Energy Partners wrote in a note to clients late last week.
Agreeing on the cap proved a difficult balancing act, as some European nations, such as Germany, feared that setting the price too low would prompt Russia to retaliate by cutting supplies, sending oil prices skyrocketing worldwide. Other nations, especially in Eastern Europe, wanted a much lower price as a way to inflict pain on Russia.
But countries were eventually able to agree on $60 a barrel, which is about the amount Russia is able to sell its oil for without a cap. This decision likely eased the concerns of OPEC Plus members that the tariff would undermine their influence over oil markets.