A dispute between Saudi Arabia and the United States over the reason for the OPEC + oil cut

CAIRO (Reuters) – Saudi Arabia dismissed criticism of OPEC+’s decision last week to cut its oil production target despite objections from the United States as “not based on facts,” and said on Thursday Washington’s request was to delay the cut for a month. It had negative economic consequences.

The White House disputed that on Thursday, saying it had presented the Saudis with analysis that showed the cuts might hurt the global economy, and alleging that the Saudis had pressured other members of OPEC to take a vote. Officials from both countries are expected to discuss the situation soon.

This contradiction added to what was already a frosty period in relations between the two countries, which had had an energy-for-security alliance for decades.

OPEC+, the producer group that includes the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, announced last week a cut of 2 million barrels per day from its production target after weeks of pressure by US officials against such a move.

The move came even though fuel markets remain tight, with stocks in major economies at lower levels than when OPEC cut production in the past.

The OPEC+ cut has raised concerns in Washington about the possibility of higher gasoline prices ahead of the US midterm elections in November, as Democrats try to retain control of the House and Senate.

US President Joe Biden pledged earlier this week that “there will be consequences” for US relations with Saudi Arabia after the OPEC+ move.

Asked Thursday about the situation during his visit to Los Angeles, Biden told reporters, “We’re about to talk to them.”

The Saudi Ministry of Foreign Affairs said, in a statement, Thursday, that the OPEC + decision was adopted by consensus, taking into account the balance of supply and demand and aimed at curbing market volatility.

The Saudi Foreign Ministry statement referred to consultations with the United States before the October 5 OPEC+ meeting, at which it was requested to postpone the cuts for a month.

And the Saudi Foreign Ministry statement said, “The Kingdom has made it clear, through its continuous consultations with the American administration, that all economic analyzes indicate that postponing the OPEC + decision for a period of one month, according to what was proposed, will have negative economic consequences.”

The United States has accused Saudi Arabia of bowing to Moscow, which objects to a Western cap on the price of Russian oil in response to its invasion of Ukraine.

“We have provided Saudi Arabia with analysis to show that there is no market basis for lowering production targets, and that they can easily wait for the next OPEC meeting to see how things develop,” White House spokesman Jack Kirby said in a statement. He added that other OPEC countries told the United States that they felt “compelled” to support the Saudi decision.

The Saudi Foreign Ministry statement, quoting an unnamed official, stressed the “pure economic context” of the oil cut. Oil demand has weakened worldwide, with the Organization of the Petroleum Exporting Countries (OPEC), the US Department of Energy and the International Energy Agency slashing demand forecasts for 2023 this week.

However, the International Energy Agency added on Thursday that OPEC’s move could exacerbate demand, saying “higher oil prices could prove the tipping point for the global economy already on the brink of recession.”

The Saudi statement said that the kingdom considers its relationship with the United States a “strategic relationship” and stressed the importance of mutual respect. The Gulf Cooperation Council, issued a statement in support of Saudi Arabia’s statements, praising the Kingdom’s efforts to protect the market from fluctuations.

In research last week, Goldman Sachs said in the past 25 years that OPEC has never cut production when stocks in the Organization for Economic Cooperation and Development – made up of 38 of the world’s richest economies – were so low. OECD stocks are currently 8% below their five-year average. However, they noted that OPEC cut production during periods of weak demand.

(Reporting by Ahmed El-Hami, Moaz Abdel-Aziz, and Maha El-Dahan). Editing by Jacqueline Wong, Tom Hogg, Jane Merriman and Margarita Choi

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