The US & Saudi Arabia at Odds Over OPEC+ Oil Cut

Saudi Arabia dismissed a "not based on facts" criticism of an OPEC+ decision to reduce its oil output target despite U.S. objections last week. Additionally, the nation stated on Thursday that Washington's desire to delay the cut by a month would have had detrimental economic effects. The White House retaliated against that, claiming it gave the Saudis a study that indicated the cuts might harm the global economy and that the Saudis had put pressure on other OPEC members to vote in their favor. In addition, representatives from the two nations will soon discuss the situation. Furthermore, the latest back-and-forth exacerbated an already tense time in relations between the two nations, which have decades-long energy-for-security ties.

Why the Clash?

After weeks of lobbying by U.S. officials against such a step, OPEC+, the producer group made up of the Organization of the Petroleum Exporting Countries (OPEC) plus allies including Russia, last week announced a cut of 2 million barrels per day to its production target. Besides, OPEC+ took the action despite the fact that fuel markets are still tight and stocks in major economies are lower than they were during previous OPEC production cuts. On the other hand, the OPEC+ cut sparked worries in Washington about the potential for increased gasoline prices ahead of the November midterm elections in the United States. Following the decision by OPEC+, U.S. President Joe Biden promised earlier this week that "there will be consequences" for the country's relations with Saudi Arabia. In addition, when questioned about the circumstance on Thursday while traveling to Los Angeles, Biden responded, "We're about to talk to them." Moreover, the Saudi foreign ministry stated on Thursday that the OPEC+ decision was taken by consensus, took into account the balance of supply and demand, and aimed to reduce market volatility. Prior to the OPEC+ meeting on October 5, the US urged to postpone the cutbacks by one month, according to the Saudi Foreign Ministry's statement. The Saudi foreign ministry issued a statement that read, "The Kingdom clarified through its continuous consultations with the U.S. administration that all economic analyses indicate that postponing the OPEC+ decision for a month, according to what has been suggested would have had negative economic consequences."

What's more

The United States accused Saudi Arabia of bowing to Moscow, which objects to a Western ceiling on the price of Russian oil in response to its invasion of Ukraine. White House spokesman Jack Kirby said in a statement, "We presented Saudi Arabia with analysis to show that there was no market basis to cut production targets and that they could easily wait for the next OPEC meeting to see how things developed." He added that other OPEC countries told the US that they felt "coerced" to support the Saudi decision. Also, Read- US startup utilizing microbes to consume oil & generate clean, cheap hydrogen On another note, the Saudi foreign ministry, quoting an unnamed official, emphasized the "purely economic context" of the oil decrease. Moreover, worldwide oil consumption has decreased. In addition, this week, OPEC, the U.S. Energy Department, and the International Energy Agency gave lowering predictions for 2023 demand. However, the IEA noted on Thursday that the action by OPEC may aggravate demand, stating that "higher oil prices may prove the tipping point for a global economy already on the brink of recession." According to the Saudi statement, the kingdom sees its relationship with the United States as a "strategic one," and it emphasised the value of mutual respect. Additionally, the Gulf Cooperation Council (GCC) issued a statement in support of Saudi Arabia's remarks complimenting the country's efforts to shield the market from volatility. Lastly, in a study released last week, Goldman Sachs said that in the previous 25 years, OPEC never once reduced output when stockpiles in Organization for Economic Co-operation and Development or OECD countries (made up of 38 of the world's richest economies) were so low. At this time, OECD stock prices are 8% below their five-year average. But, they noted that OPEC cut back on production when demand was low.