OPEC+’s plans to cut oil production is a “mistake,” according to U.S. Senator Chris Murphy, who said there needs to be a re-evaluation of the alliance between the group’s de-facto leader and the United States.
The influential alliance of some of the world’s most powerful oil producers is reportedly considering its largest output cut since the start of the coronavirus pandemic.
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“I think it is a mistake on their part. And I think it’s time for a wholesale re-revaluation of the U.S. alliance with Saudi Arabia,” Murphy told CNBC’s Hadley Gamble Tuesday.
Murphy said that the United States needed the Saudis to take steps that “may affect their short-term bottom line when it comes to oil revenues,” but which would allow the West to survive the challenge against Russia.
“I just don’t know what the point of the current alliance is, if we have to work so hard to get the Saudis to do the right thing,” the Democratic Party member Murphy said.
U.S. President Joe Biden visited the Saudi government in July in a bid to ramp up oil production and rein in soaring energy prices. Increased production would flood the market with oil, helping to cool global gasoline prices which can hurt the U.S economy when they are sky-high.
Murphy added that he does not think Biden’s visit had gotten what they needed from the Saudis, and cautioned on the United States having any sort of business dealings Saudi Arabia.
Saudi Arabia seems to be working directly against Western interests, said Timothy Ash, senior emerging markets strategist at Bluebay Asset Management.
“Saudi Arabia is working with Russia to limit oil production and boost international oil prices in the middle of a global cost of living crisis – and yet Saudi still thinks it can tap Western capital markets to fund projects like Neom,” he said in an e-mailed comment.
The Neom project is an ambitious city plan founded by Saudi Arabia’s crown prince, which aims at incorporating smart city technologies to build a futuristic town.
“I think you’ve got to be very careful to do business with the Saudis these days, you’re condoning and associating yourself with a brutal regime,” he said.
“A regime [that] frankly, doesn’t seem to be willing to stand with its allies in Europe, in the United States when we really need them to.”
“What’s the point of looking the other way if the Saudis chop up journalists and repress political speech inside Saudi Arabia,” he continued. His comments refer to the killing of Jamal Khashoggi, Washington Post journalist and critic of Saudi Crown Prince Mohammed bin Salman, at the Saudi Consulate in Istanbul in October 2018.
According to a U.S. intelligence report, the Saudi crown prince approved an operation to capture or kill Khashoggi at that point in time. The Saudis deny any involvement by the crown prince, maintaining that the death was the result of a premeditated rendition plan gone awry.
The Saudi Ministry of Foreign Affairs was not immediately available for comment when contacted by CNBC.
“OPEC+ wants to stay in control of the market and wants to keep the market in balance, and ensure what they have achieved over the last few years remains in place,” said commodity analyst at UBS Wealth Management, Giovanni Staunovo.
Staunovo added that oil prices tapered quickly in recent months due to aggressive monetary policy tightening in Europe, as well as the strong U.S. dollar.
At the start of last month, the European Central Bank raised rates by an unprecedented 75 basis points, taking its benchmark deposit rate to 0.75%. The bank also revised up its inflation expectations for 2022 to an average of 8.1%.
Global oil prices skyrocketed to more than $120 per barrel after the Russian-Ukraine war broke out, but have eased to above $80 per barrel more recently.
The analyst added that different interventions by the U.S. administration “irritated” the OPEC players, such as the “massive release from the strategic oil reserves.”
A few weeks ago, the U.S. Energy Department announced it would sell up to 10 million barrels of oil from the SPR for delivery in November.
With the U.S. midterm elections coming in November, Staunovo added that lower gasoline prices are something that people would want to see.
“We all know that gasoline prices are an important element for the elections. And in that perspective, all the parties want to see low prices,” he said.