The major oil-producing countries led by Saudi Arabia and Russia are wrestling with whether to make another cut in supply to the global economy as the OPEC+ alliance struggles to prop up sagging oil prices that have been a boon to US drivers and helped ease inflation worldwide.
The 23-member group is meeting Sunday at OPEC headquarters in Vienna after sending mixed signals about possible moves.
Saudi Arabia, dominant among the group’s members, has warned speculators that they might get burned by betting on lower prices. Russia, the leader of the non-OPEC allies, has indicated no change to output is expected.
The decision comes amid uncertainty about when the slow-growing global economy will regain its thirst for fuel for travel and industry, and with producers counting on oil profits to bolster their coffers.
Oil prices have fallen even after OPEC+ slashed 2 million barrels per day in October, angering US President Joe Biden by threatening higher gasoline prices a month before the midterm elections. Then, several OPEC members led by the Saudis made a surprise cut of 1.16 million barrels a day in April.
International benchmark Brent crude climbed as high as $87 per barrel but has given up its post-cut gains and been loitering below $75 per barrel in recent days. US crude has dipped below $70.
Those lower prices have helped US drivers as the summer travel season kicks off, with prices at the pump averaging $3.55, down $1.02 from a year ago, according to auto club AAA. Falling energy prices also helped inflation in the 20 European countries that use the euro drop to the lowest level since before Russia invaded Ukraine.
The US recently replenished its Strategic Petroleum Reserve — after Biden announced the largest release from the national reserve in American history last year — in an indicator that US officials may be less worried about OPEC cuts than in months past.
The Saudis, on the other hand, need sustained high oil revenue to fund ambitious development projects aimed at diversifying the country’s economy. The International Monetary Fund estimates the kingdom needs $80.90 per barrel to meet its envisioned spending commitments, which include a planned $500 billion futuristic desert city project called Neom.
That may have been one motivation behind Energy Minister Abdulaziz bin Salman’s warning to speculators that they will be “ouching” if they keep betting on lower oil prices.
Bin Salman’s pointed comment isn’t necessarily a prelude to a cut at Sunday’s meeting, said James Swanston, Middle East and North Africa economist at Capital Economics.
“Our expectation is that OPEC+ will stick with current output quotas,” he said, adding that “there have been signs that the government may be readying to live with lower oil prices and running budget deficits.”
On top of that, Russia may find current prices to its liking because its oil is finding eager new customers in India, China and Turkey.
Western sanctions over the war in Ukraine have forced Russian oil to sell at discounts of around $53 to $57 per barrel.