The recent “unfortunate decision” by OPEC+ to cut down oil output threatens price outlook, and comes at a time when global economies are on the brink of a recession, Birol said in a group interview at the Singapore International Energy Week Conference, according to Bloomberg. “We still have huge amount of stocks to be released in case we see supply disruptions … Currently it is not on the agenda, but it can come anytime.”
On Oct. 5, OPEC+ announced that it would cut down oil output by two million barrels per day in November. According to an IEA report, the cartel’s decision will derail the growth trajectory of oil supply for 2022 and 2023, exacerbating market volatility.
“The massive cut in OPEC+ oil supply increases energy security risks worldwide. Even taking into account lower demand expectations, it will sharply reduce a much-needed build in oil stocks through the rest of this year and into the first half of 2023,” the report said.
However, the IEA does not expect the OPEC supply cut to actually be two million barrels per day next month. The majority of the alliance’s members are already producing way below their ceilings due to capacity constraint issues.
As such, the IEA is expecting the actual production cut from the OPEC nations to be around one million barrels per day, with much of the reduction coming in from Saudi Arabia and the United Arab Emirates.
In addition, oil production losses can grow in December when a European Union embargo on Russian oil imports comes into play, IEA calculates. Russia has already announced that it would scale down oil output to compensate for any negative impact of proposed oil price caps.
US Oil Output, Reserves
The IEA report also points out that U.S. shale producers used to be the most responsive to changing conditions in the oil market. Now, however, they are struggling due to cost inflation and supply-chain constraints.
Oil prices in the United States had hit $120 per barrel this year. But this did not trigger any boom in production due to high costs and shortages of labor and equipment, Hunter Kornfeind, oil market analyst at Rapidan Energy Group, said to Reuters. Oil is currently being sold at around $85 per barrel.
To make matters complicated, President Joe Biden has used America’s Strategic Petroleum Reserves (SPR) in a bid to lower gasoline prices.
The Biden administration has released more oil from U.S. reserves than all previous administrations combined. As a consequence, the SPR is now at its lowest level since 1984.
House Minority Leader Kevin McCarthy (R-Calif.) has called for implementing legal safeguards to ensure that the president cannot use the country’s critical SPR for political purposes. Biden has decided to release 15 million barrels of oil from the reserves ahead of the November midterms.
“He has just jeopardized the American people,” McCarthy said during “The Hugh Hewitt Show.” “So, we’re going to have to safeguard that [so] that you cannot use that for your political gain.”