OPEC+ Extends Cuts in Oil Output to Resist Price Decline

President Biden has been draining the strategic reserves, a move criticized by political opponents who claim it is solely for ‘political purposes.’

Saudi Minister of Energy Prince Abdulaziz bin Salman al-Saud arrives for the 186th Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna on June 3, 2023. Joe Klamar/AFP via Getty Images

Nations in the OPEC+ group have agreed to continue keeping daily oil output lower by nearly 4 million barrels per day in a bid to “support the stability and balance of the oil markets.”

The decision by the international consortium could resist any downward pressure on prices through the election season.

OPEC+ nations Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman, met on June 2 and decided to continue the oil output cuts announced last year.

This includes a daily reduction of 1.65 million barrels announced in April 2023, which will be extended until the end of December 2025. The 2.2 million barrels per day of production cuts announced in November 2023 were originally scheduled to end in September 2024.

However, these cuts will now be “gradually phased out” on a monthly basis by September 2025. The reduction may be paused or reversed based on market conditions.

The meeting of the OPEC+ nations was aimed at reinforcing efforts to “support the stability and balance of the oil markets.” Since April 2023, Brent crude oil has traded in a range of $70 to $100 per barrel. It was trading at about $80 per barrel as of 9 a.m. on June 3. Oil prices have declined since hitting $90 in early April.

In the United States, the price of gasoline traded at between $3 and $4 per gallon during this period, after briefly reaching a high of about $4 per gallon during August to September last year. Prices are currently at about $3.60 per gallon.

“For now, we may see somewhat of a summer rise in oil prices, but we maintain the current GasBuddy 2024 Fuel Outlook forecast for #gasprices and diesel,” Patrick De Hann, an oil and refined products analyst, said in a June 2 post on X.

“Bottom line—motorists will still see #gasprices declining for the coming weeks, but there will be a bit more of a potential range in prices for July and August, dependent on demand.”

The GasBuddy 2024 Fuel Outlook report had predicted U.S. gasoline prices to get closer to $4 per gallon as the summer season (roughly June 20 to Sept. 22) approaches. It forecasted prices to peak in May at about $3.90 per gallon. However, “more uncertainty is expected with hurricane season in late summer,” it said.

Rising gasoline prices contribute to inflation, thus burdening citizens even more. The annual overall inflation rate has remained at 3 to 4 percent since June last year, above the U.S. Federal Reserve’s target rate of 2 percent.

Commenting on the OPEC decision, oil expert Tom Kloza predicted on X a “modest rise” in crude prices in the third quarter. In the final quarter, consumers should expect “lots of downward pressure.”

“Unless hurricanes impact US Gulf Coast, next $10/Barrel move is lower. Modest gasoline price decreases in first half June before stabilizing,” he wrote.

Tapping Strategic Oil Reserves

The Biden administration has announced plans to reduce gasoline prices. Last month, the government said it would release one million barrels of gasoline from its reserve to cut pump prices ahead of the busy summer season.

Retailers and terminals were scheduled to receive 42 million gallons of gasoline by June 3. The United States’ emergency stockpiles have now dipped below 370 billion barrels.

Energy Secretary Jennifer Granholm claimed that the Biden administration is “laser-focused on lowering prices at the pump for American families” and that the White House is “ensuring sufficient supply flows to the tri-state and northeast at a time hardworking Americans need it the most.”

On May 29, Sen. John Barrasso (R-Wyo.) and Rep. Cathy McMorris Rodgers (R-Wash.) sent a letter to Ms. Granholm, criticizing the Biden administration’s decision to “further drain the Strategic Petroleum Reserve (SPR).”

The SPR is a “strategic asset” that is supposed to be used during national emergencies such as wars and natural disasters. The reserve has reached its “lowest level since 1983” under President Joe Biden, and the continued depletion of SPR is “troubling,” their letter stated.

They accused the administration of abusing the SPR for “political purposes” to bring down high inflation triggered by the government’s “radical rush to ‘green’ energy policies.”

When President Biden came to office, the SPR had 638 million barrels, which has now been reduced to 367 million barrels, a 42 percent decline, the lawmakers said. The Republicans urged Ms. Granholm to “ensure that the SPR is not abused for political purposes in this election year.”

Meanwhile, Democrat senators sent a letter to Attorney General Merrick Garland asking the Department of Justice (DOJ) to investigate alleged price fixing in the oil industry.

During a probe by the Federal Trade Commission of ExxonMobil’s $60 billion proposed acquisition of Pioneer Natural Resources, the agency uncovered price-fixing evidence against former Pioneer CEO Scott Sheffield, the May 30 letter said.

Mr. Sheffield is alleged to have colluded with OPEC to “reduce output of oil and gas, which would result in Americans paying higher prices at the pump, to inflate profits for his company,” it said.

These reports are “alarming” and provide credence to theories that “corporate avarice is keeping prices artificially high,” the letter said.

This is also a national security threat as it could lead to the enrichment of U.S. rivals such as Iran and Russia, the lawmakers noted.

They asked the DOJ to hold accountable any person in the oil industry involved in price fixing.

“Corporate malfeasance must be confronted, or it will proliferate. These alleged offenses do not simply enrich corporations; hardworking Americans end up paying the price through higher costs for gas, fuel, and related consumer products,” they said.

The draining of reserves may not have much of an effect on domestic prices if OPEC decides to curb the global oil supply.