The Organization of the Petroleum Exporting Countries and its allies, including Russia, announced on Wednesday plans for the reduction of oil production by 2 million barrels per day starting in November.
Industry leaders have already been vocal on how this move would most likely result in higher fuel prices across the U.S. As of Oct. 5, gas prices were at an average of $3.831, up from $3.765 the previous week. Diesel prices as of Oct. 3 averaged $4.836 nationally, down 5.3 cents from the previous week but still $1.36 higher than a year ago.
Known as OPEC+, the group made the decision during the in-person meeting held at the OPEC Secretariat in Vienna, Austria. The reductions, shown on OPEC documents as "voluntary" adjustments, from the August 2022 required production levels would be the biggest reduction since the pandemic.
"This would be the first major OPEC+ cut since 2020 when oil prices went negative," Helima Croft, head of global commodity strategy at RBC Capital Markets, told CNBC.
A statement from President Biden's National Security Advisor Jake Sullivan and NEC Director Brian Deese called the decision "shortsighted," noting that the cut would negatively impact lower- and middle-income countries already feeling the effects of rising energy prices. The president directed the release of 10 million barrels of oil from the U.S.’s Strategic Petroleum Reserve, but analysts expect it will have little impact on prices, according to the Wall Street Journal.
Last month, oil prices saw a sharp drop with U.S. crude going below $80 a barrel. This marked the lowest finish since January. Benchmark U.S. crude oil for November delivery rose $1.24 to $87.76 a barrel Wednesday, according to published reports.
OPEC+ produces more than half of the world’s crude oil. However, some analysts predict the cut may not be as much as advertised, noting that the group often doesn't meet its targets.
The news comes as gasoline and diesel inventories are below normal, according to data from the U.S. Department of Energy. Gasoline inventories fell nearly 5 million barrels last week, leaving inventories 9% below normal for this time of year. Inventories of distillate fuels, including diesel, fell more than 3 million barrels — 21% below normal.
The coalition stated the move was made “in light of the uncertainty that surrounds the global economic and oil market outlooks, and the need to enhance the long-term guidance for the oil market, and in line with the successful approach of being proactive, and preemptive, which has been consistently adopted.”