OPEC's surprise decision to cut production and the US's lukewarm response
JARRET RENSO, ANDREA SALLAL/REUTERS
When OPEC made a surprise decision earlier this month to cut production, US President Joe Biden responded with what was politically it would amount to a subtle shrug. Ara was far from his earlier statement that there would be consequences for Saudi Arabia, when he had cut production in October last year.
OPEC's move could complicate US President Joe Biden's efforts to tame stubborn inflation.
The country in question is also the de facto leading power of the oil cartel. The tepid response partly reflects the Biden administration's view that production cuts may not have as severe an impact on the U.S. and global economy as the 2022 cuts, which took place while oil supplies were still tight. US officials believe that the US economy and the global economy have now entered a more predictable and less volatile phase.
Last year, a rapid resurgence of the coronavirus, which put severe pressure on the supply chain and while demand was buoyant, sent inflation soaring to 40-year highs. Gasoline prices have stabilized at lower levels this year, U.S. oil production is near record highs and the labor market, while still strong, is cooling along with inflation, Washington officials say. The White House cut its estimate for GDP growth in 2023 to just 0.4% in March from 1.8% in August 2022.
OPEC's move could complicate U.S. President Joe Biden's efforts to tame stubborn inflation and deescalate gasoline prices at home, according to numerous interviews with U.S. officials and analysts. The recent banking crisis in the USA has added another factor of uncertainty to economic forecasts both domestically and internationally. Commodity analysts at Goldman Sachs revised up their end-2023 price target for Brent, the global benchmark, by $5 to $95 a barrel.
If it hits $100, that would mean another 50 cents a gallon for gas, analysts estimate, pushing gas station prices above the critical $4 level. High energy prices were the main driver of pressure that led the US Federal Reserve to raise interest rates and reignited fears of a recession. “The expected rise in oil prices for the rest of the year, as a result of these voluntary cuts, may fuel global inflation, prompting more aggressive rate hikes,” concluded Rystad Energy's Victor Posford.
