Saudi Arabia pushes back against criticism of Opec+ cut

Saudi Arabia has doubled down on defending the Opec+ group's latest decision to lower production quotas from next month, insisting that any delays to the move would have had economic costs.

In a statement issued overnight, the Saudi foreign ministry said Riyadh once more rejects accusations that the Opec+ decision of 5 October to lower targets by 2mn b/d from November was underpinned by a Saudi incentive to align itself with key sanctions-struck group member, Russia.

"Saudi Arabia would first like to express its total rejection of these statements that are not based on facts and which are based on portraying the Opec+ decision out of its purely economic context," the foreign ministry said. "[Saudi Arabia] clarified through its continuous consultation with the US 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."

The Saudi foreign ministry did not disclose who had authored the postponement proposal. But the Wall Street Journal reported on 11 October that US officials had reached out to Saudi Arabia and other Mideast Gulf Opec+ allies days before the 5 October meeting to request that any move to reduce targets be delayed by one month. A one-month delay would see the supply reductions begin in December, after US citizens head to the polls for midterm elections on 8 November.

Opec+ officials have repeatedly defended the decision as the result of concerns over a global economic slowdown and continued weaker Chinese demand.

"We looked at the technical parameters and global economic indicators and I think it's no secret to anybody that we are facing macroeconomic headwinds," Opec secretary general Haitham al-Ghais said in an interview with Argus after the meeting. "This is clearly evidenced by the actions taken by central bankers all around the world."

And in its latest Monthly Oil Market Report (MOMR) released on 12 October, Opec revised down its estimates of world oil demand growth by 460,000 b/d for this year and by 360,000 b/d for 2023.

Turning up the heat

The White House has been very vocal in its criticism of the Opec+ decision since it was announced last week. US president Joe Biden said on 11 October he would look to re-examine Washington's relationship with Riyadh, while US lawmakers have been pitching legislation that that would target Opec for anti-competitive behaviour in oil markets. The White House is spearheading a price cap initiative that seeks to keep Russian oil supplies accessible to buyers outside of Europe and North America, while lessening Moscow's funding for its war in Ukraine.

US deputy treasury secretary Wally Adeyemo questioned the economic merits of tightening oil supplies, whose firm prices he identifies as one of the "primary" drivers of inflation. "The idea that you would cut supply of the commodity that is driving headline inflation, felt to be something that did not make sense," he said. "We think that it's not only bad for consuming countries, but ultimately, it's bad for Opec, if the global economy weakens, because these are ultimately your customers."

Russia entered the Opec+ alliance as the de facto leader of the non-Opec contingent, receiving baseline and quota levels equal to those of Opec's largest producer, Saudi Arabia. But some Opec+ delegates have been saying that Russia's declining supplies — constrained by western sanctions imposed in response to Russia's invasion of Ukraine — have diminished Moscow's influence within the Opec group.

On 12 October, Saudi Arabia was one of 143 countries that voted in favour of a UN General Assembly resolution that condemns Russia's "illegal so-called referendums" in regions within Ukrainian borders and demands that Moscow should reverse its annexation of four Ukrainian regions. The five states who voted against the measure included no Opec+ members beyond Russia.

By Ruxandra Iordache and Haik Gugarats