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Oil-producing countries including Saudi Arabia and Russia agreed to cut production by a significant 2 million barrels a day to boost prices. The move is being seen as a big setback to the Biden administration before the midterms and something that will help Russia raise oil revenues and support its invasion of Ukraine. Ryan Chilcote joined Amna Nawaz to discuss the impact.
In a meeting of OPEC Plus nations yesterday in Vienna, oil-producing countries, including Saudi Arabia and Russia, have agreed to cut oil production by two million barrels a day to lift sagging oil prices.
The move is being seen as a big setback to the Biden administration just over 30 days before the midterms and as a salve to Russia, helping it raise its oil revenues and support its invasion of Ukraine. President Biden called it a disappointment and said his administration is looking for alternatives.
To decode all of this, with me now is special correspondent Ryan Chilcote, who joins us from Ithaca, New York.
Ryan, welcome back to the "NewsHour." Good to see you.
So the OPEC Plus nations see themselves as guardians of the stable energy market. Even the Saudi energy minister today said, we're here as a moderating force. This is going to bring stability to the market.
What is that argument? Explain that to us?
How does slashing production bring that about?
Yes. Well, yes, they like to think of themselves as the central bank of oil, if you will.
And so their argument is that we're heading into a global recession and that, as we move into that recession, the demand for oil is going to fall. So they are arguing it's best to preemptively remove that excess supply, those two million barrels, they say, so that we don't have a situation where the price — the demand falls, and, of course, the price falls as a result.
And you can kind of understand where they're coming from, because, if you look at, between 2020 and 2022, we have seen oil prices go from everywhere between I think it was in March of 2020 minus $40 a barrel — you actually had to pay people to take oil off your hands at the beginning of the pandemic — to as much as $130 earlier this year.
So that $170 range is too much volatility. They say, by doing this, they can smoothen out the price range, which is what they need as oil-producing countries. Now, their critics will say, well, come on. They knew that the recession was coming. They know that this is — that there's an inflation problem, that this will only exacerbate the inflation problem.
They are a very careful organization. They spent much of the year already ratcheting up oil production by 400,000 barrels of oil each time. So, a cut like two million barrels isn't any nuanced move. This is really, their critics would say, just about raising the oil price so they can make more money.
So, Ryan, there's a lot of focus on the Saudis. But Russia is a leader in this OPEC Plus oil cartel as well. What does this mean for them and what do we know about their role in this decision?
Yes, you said it right there.
So this is OPEC Plus, because OPEC really ceased to be a meaningful institution in 2016, when OPEC Plus was formed, when the Russians basically joined OPEC. The Russians and the Saudis are first amongst equals in OPEC Plus. And the Russians, of course, are very interested in — or would have been interested in this supply cut, because they want a higher oil price because. And this doesn't really cost them anything, because a lot of their oil isn't making it to market in the first place because of the sanctions.
So the oil that they are able to sell to India and to China, well, they want to try and get as high of a price for it as they can. So this was very much in their interests. And that's exactly why the Russian deputy prime minister, who was just sanctioned last week by the United States on the back of Russia has attempted annexation of those four regions in Ukraine, traveled to Vienna and helped forge this deal, together with the Saudis.
What does all this mean for consumers, especially here in the U.S.? We have been seeing gas prices ticking down steadily since those summer peaks. What does a slash and production mean for what's ahead?
Well, it means higher prices at the pump, because what you have seen this year over the last four months is the price of oil fall by about 20 percent.
And there's almost a direct influence between what crude oil costs and what you pay for it after refining. So if the price goes up — and there are people that are saying now oil is going to go well over $100 a barrel — then you will see the price at the pump go up as well.
What about what the president can do? I mean, we heard him say earlier today he's disappointed, but they're looking at alternatives.
What can President Biden do at this point?
Yes, it's a tough one.
The president was asked today about Venezuela. Could Venezuela provide more oil to the market. Might that help things? Venezuela, of course, has the world's largest oil reserves, even more than Saudi Arabia. But it's locked out of the market because of sanctions. But I think the concern with Venezuela would be that it's been out of the market for so long, its infrastructure so degraded, all of the investment gone, many of the engineers have fled, that it would take a good while for Venezuela to add a sufficient amount of oil to the market to really make a difference.
I think the interesting thing is that, in the United States, there will be a lot of energy companies, a lot of oil producers saying, hey, if you're looking for a solution, we're part of it, Biden administration, because they have been complaining a lot that they're not being — they're not being heard by the Biden administration.
In fact, I was at a energy conference just a couple of weeks ago, and the CEO of a U.S. oil company was saying just that. He was asked whether — what kind of dialogue U.S. oil producers have with the Biden administration, and he said, we have no dialogue at all.
So they see themselves as part of the solution, but they feel like, because they're the bad guys in the energy transition, the climate change conversation, they're ignored.
Meanwhile, Americans are left to wonder what comes next and bracing for potentially higher prices at the pump.
Ryan Chilcote, special correspondent joining us tonight from Ithaca, New York.
Thank you, Ryan.
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Amna Nawaz serves as co-anchor of PBS NewsHour.
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