OPEC+ just made the Fed’s job more complicated. Here’s why they did it — and what could be next
The logo of the OPEC is pictured at the OPEC headquarters on October 4, 2022. In October last year, the oil cartel announced its decision to cut output by two million barrels per day.
Joe Klamar | Afp | Getty Images
Several OPEC+ members are set to tighten global production by an additional 1.16 million barrels per day until the end of the year, further burdening central bank efforts to curtail global inflation — but critically protecting the alliance’s broader output strategy from political pressures.
Washington has stepped in to criticize Sunday’s announcement where eight OPEC+ producers — including group leader Saudi Arabia and key allies Kuwait and the UAE — said they would remove more than a combined 1 million barrels per day from global oil markets, as part of an independent initiative unlinked to the broader OPEC+ policy.
This adds to Russia’s existing intentions to trim 500,000 barrels per day of its own production from February output levels, now until the end of the year — bringing the combined voluntary cuts of OPEC+ members in excess of 1.6 million barrels per day.
“We don’t think cuts are advisable at this moment, given market uncertainty — and we’ve made that clear,” a spokesperson for the National Security Council said, according to Reuters.
U.S. President Joe Biden’s administration has repeatedly lambasted the OPEC+ group for its production cuts, citing the inflationary toll on households and flinging accusations of camaraderie with sanctions-struck Russia. Curbs in production lead to smaller supply, causing higher prices at the pump in importing countries which then provides a boost for headline inflation figures.
Relations devolved into a war of words with OPEC+ chair Saudi Arabia at the end of last year, when the oil group agreed a 2 million barrels per day cut until the end of 2023 — a decision upheld at ministerial and technical committees since.
One such technical council, the OPEC+ Joint Ministerial Monitoring Committee concluded on Monday with a statement that acknowledged the voluntary cuts, making no mention of a broader change in formal production policy.
Referring to the voluntary cuts, the OPEC Secretariat said they represent “a precautionary measure aimed at supporting the stability of the oil market.”
The JMMC will next convene on June 4, with a full ministerial meeting to follow.
Formal group action is arguably no longer required, with front-month June Brent futures prices up by $4.44 per barrel from the Friday settlement to $84.33 per barrel at nearly 10 a.m. London time. Some analysts now warn of prices soaring to $100 per barrel, while Goldman Sachs could drive up Brent forecasts by $5 per barrel to $95 per barrel for December 2023.
“The anticipated increase in oil prices for the rest of the year as a result of these voluntary cuts could fuel global inflation, prompting a more hawkish stance on interest rate hikes from central banks across the world. That would, however, lower economic growth and reduce oil demand expansion,” said Victor Ponsford of Rystad Energy in a research note.
Tamas Varga, of oil broker PVM, flagged the broader political risks of the organized voluntary cuts, telling CNBC that headline inflation should rise faster than anticipated.
“But central banks might not deviate from the course of slowing down the hike in borrowing as their views are chiefly shaped by core inflation figures, which will not be as much affected by stronger oil prices as headline data,” he said.
“The voices of the proponents of the NOPEC bill in the US Congress will also get louder and they will accuse OPEC+ to use oil as a weapon. The step is unreservedly bullish, for now macro worries are overtaken by supply concerns. The move will also lead to further souring of the Saudi-US relationship.”
The NOPEC — No Oil Producing and Exporting Cartels— bill refers to proposed U.S. legislation that would open OPEC+ countries to potential antitrust legal action.
The U.S. can attempt to combat price hikes by releasing further volumes from its Strategic Petroleum Reserves — with one anonymous OPEC+ delegate saying that Washington has encumbered its fight against inflation by blocking global access to Venezuela and Iranian volumes, while EU nations likewise refrain from Russian purchases out of solidarity with the invaded Ukraine.
OPEC+ delegates have previously also found fault with western nations’ windfall taxes on energy companies — which they claim received no consistent support when WTI futures traded in negative territory in April 2020 — and with the accelerated shift toward renewables that has reduced hydrocarbon investments without producing sufficient alternative green fuel to fully meet consumer demands.
Spare capacity has been at the heart of recent OPEC+ pronouncements, with the group stepping in to protect the appeal of stable return for long-term investments in oil projects. Nearly all of the countries participating in the recently-announced independent cuts possess additional capacity.
One anonymous OPEC+ source said discussions to coordinate further independent cuts gained traction toward the end of last week, when volatility in the banking sector following the failures of several U.S. and Swiss lenders eroded investor confidence in more historically volatile assets, such as oil. OPEC+ delegates have previously expressed that the oil impact of the banking turbulence would be short-lived, with longer-term questions lingering over the looming demand of a reopening China, the world’s largest consumer.
“What happened to the oil prices over the last three weeks was nothing to do with oil factors, it was everything to do with the banking crisis, and the fears that brings with it. We also had a huge, huge increase in [the] short market, and that is something that OPEC are very keen to stomp out,” Amrita Sen, co-founder and director of research at Energy Aspects, told CNBC’s Dan Murphy.
Investors generally assume short positions when they expect market or price declines.
“I do believe, if the market overtightens, or exogenous issues or shocks fade, they will reverse this cut along the line. So this isn’t set in stone for the rest of the year, but very clearly defending a floor.”
Voluntary production moves are easier to agree and unwind without staining domestic or external OPEC+ politics. Such cuts have previously been accepted by the group, provided they aligned with the spirit of existing OPEC+ policies — but they have typically expressed the initiative of a single country, barring temporary Saudi-Kuwaiti-UAE reductions organized during the Covid-19 pandemic.
A coordinated gesture of Sunday’s scale effectively creates a second, unofficial agreement on top of the existing formal OPEC+ strategy — one that does not command formal commitments and can be more readily defended when individual oil ministries face pressures from their own governments or state oil companies to increase output and short-term revenues. Independent cuts also bypass the need for unanimous OPEC+ member approval and tentatively avoid external accusations of organized anti-consumer behavior.
But the gesture will not bridge the growing political rift between OPEC+ kingpin Saudi Arabia and the Biden administration, whose influence has been increasingly supplanted by China in the Middle East. In the past month, Beijing brokered a resumption of relations between arch-rivals Tehran and Riyadh, with Saudi Arabia also taking steps to join the China-led Shanghai Cooperation Organization as a dialogue partner.
“[The organized voluntary cuts] certainly would play into the narrative that the U.S. is losing its influence in the region to either influence the actions of core OPEC producers like Saudi Arabia and the UAE, which have traditionally been client states of the U.S.,” Andy Critchlow, EMEA head of news at S&P Global Platts, told CNBC.
“You can’t really look at this in isolation from the wider geopolitical situation in the Middle East, which is seeing these core oil producers shift closer to China, shift much closer to Russia. You know, they like operating in this multipolar world, instead of being completely tied to U.S. dependency.”
Environment
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In the Electrek Podcast, we discuss the most popular news in the world of sustainable transport and energy. In this week’s episode, we discuss Apple CarPlay possibly coming to Tesla cars, VW getting access to Superchargers, a Toyota electric pickup, and more.
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US EV sales declined in October following the expiration of the $7,500 federal tax credit on September 30, and the average transaction price (ATP) edged up, according to initial estimates from Kelley Blue Book, a Cox Automotive brand. However, there are still deals to be had.
Kelley Blue Book’s initial estimates show that US EV sales fell to 74,835 in October, down 48.9% from September, which was a record month, and 30.3% year-over-year.
Prices also ticked up. The average transaction price (ATP) for a new EV climbed 1.6% month-over-month to $59,125, which is 2.3% higher than a year ago.
Tesla didn’t escape the downturn, but it held up better than the overall EV market. The company’s ATP fell 1.1% from September to $53,526, and its prices are 5.5% lower than they were in October 2024. Sales of the Model 3 and Model Y both declined month-over-month, and overall Tesla sales decreased by 35.3% from September and 23.6% year-over-year, which are smaller declines compared to the broader EV segment.
Cox Automotive senior analyst Stephanie Valdez Streaty said the shift wasn’t surprising:
We expected this shift in the electric vehicle market. With the IRA-backed sales incentives gone, lower-cost EV volume was hit hard, pushing the mix toward more luxury and driving October’s EV ATP to a 2025 high of $59,125 – now $9,359 above the industry average. Affordability has always been the core challenge with EV sales, and this reset only underscores how critical it is to bring more attainable EV options to market.
Electrek’s Take
September was a record-breaking month for both EV deals and sales. Dealers were offering all sorts of sweet incentives to stack with the federal tax credit to move cars off the lot. October’s sales drop was entirely anticipated, like a pounding headache after a big blowout party.
We didn’t know what the post-federal tax credit EV market would look like. As Valdez Streaty rightly states, EVs do have a higher ATP than the industry average. But it turns out that, so far, it’s not all doom and gloom, and the federal tax credit isn’t the only incentive in town.
Every month, I compile great EV lease deals, and for the last few months, some EVs’ monthly lease payments have been cheaper than before the federal tax credit expired. Many states are still offering rebates on EV purchases, and dealers still have really good deals. While cheaper models would definitely be welcome, there are good deals available right now.
And let’s not forget the fact that EVs are much cheaper to drive than gas cars, with or without that tax credit.
Read more: From $189 a month: 5 of the best EV lease deals in November [Updated]
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The Oshkosh-built Striker Volterra Electric Aircraft Rescue and Fire Fighter (ARFF) packs advanced battery technology to deliver ultra-fast emergency response performance no matter how long it needs to be in action — and Dallas Fort Worth International Airport just put six of the awesome 6×6 machines to work!
Oshkosh has been manufacturing ARFF vehicles since it first launched the MB-5 for use by the US Navy back in 1968, and they’ve been pushing the envelope of disaster response performance ever since. The company’s latest ARFF, the Striker Volterra Electric shown here, features a slanted body with front bumper designed for maneuvering through the ditches and rough terrain they might encounter on a damaged runway. It’s also big — but it’s big for a purpose. Because ARFF vehicles don’t have to navigate the confines of city streets, they can be built bigger, carry more water, more rescue equipment, and more personnel than conventional fire trucks.
As the newest members of the DFW Fire-Rescue fleet, these Striker Volterra Electric ARFF vehicles represent a significant step in DFW’s broader plan to replace its legacy fleet with a modern, electrified response system, while also making DFW the largest Striker Volterra Electric ARFF fleet operator in the US.
“Enhancing performance by reducing response times is the key driver of transitioning to these new vehicles,” said Daniel White, DFW Fire-Rescue Chief. “The Striker Volterra vehicles are faster and more agile than our current fleet. Because they are also safe for our firefighters and conscious for the environment, this investment represents a rare win-win-win, delivering operational benefits while ensuring the safety of our responders and the community we serve.”
The Striker Volterra Electric 6×6 ARFF uses a proprietary Oshkosh electric powertrain and an electro-mechanical infinitely variable transmission (read: CVT) paired to an integrated diesel generator. The setup enables zero-emission electric operation during normal station entry, standby, and low-speed tasks, eliminating firefighter exposure to their ARFF’s diesel exhaust 99% of the time. For sustained high-power demands during active fire suppression, the system seamlessly draws from both the battery and generator, ensuring uninterrupted pumping power and performance without operator intervention.
“Our commitment goes far beyond delivering a vehicle,” said Travis Ownby, sales specialist with Siddons-Martin Emergency Group. “It’s about helping departments like DFW Fire-Rescue lead the way in operational excellence and sustainability. We’re proud to support their mission with the Striker Volterra Electric ARFF vehicles.”
The addition of the Striker Volterra Electric ARFF vehicles also supports DFW’s transition to fluorine-free firefighting foam in line with FAA guidance and the industry’s move away from PFAS-based agents for a more environmentally responsible response capability across the airport.
Electrek’s Take
With the relatively short distances driven and extreme loads involved, airports present a nearly ideal use case for battery-electric vehicles in general, and their immediate off-the-line torque, improved efficiency, and ability to operate much more quietly than diesels (facilitating emergency crews’ communications) could make all the difference in an emergency situation where lives are quite literally on the line.
Plus, as demand for on-road fossil fuels drops, airports and airlines (historically responsible for about 4% Earth’s global warming) are becoming a bigger and bigger slice of a rapidly shrinking pie when it comes to fossil fuel emissions. Or, as OshKosk put it, “As airports continue to prioritize sustainability and operational efficiency, the Striker Volterra electric ARFF stands out as a forward-thinking solution that meets today’s demands while preparing for tomorrow’s challenges.”
It’s a bit pitchy, but I couldn’t agree more.
SOURCE | IMAGES: Oshkosh.
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