OPEC+ cuts about ‘reasserting their control’ on oil markets, analyst says

The Energy Word Founder Dan Dicker joins Yahoo Finance Live to discuss the OPEC+ oil production cuts, how it will affect oil prices, and tension between Saudi Arabia and the Biden administration.

Video transcript

- Welcome back. Oil prices heading slightly higher, about half a percent up. And that's after OPEC Plus's decision to cut output. And let's talk about what this means for the energy space with Dan Dicker. He is the founder of The Energy Word. And we have him on the phone here. Dan, always great to talk with you. The official cut was 2.1 million barrels per day. But in effect, it is much, much less than that. Why is that?

DAN DICKER: Well, basically, Jared, it's because OPEC has been under-producing what it has been promising the market since December of '21. And that's only grown. I mean, you might have realized that they've been increasing their limits, their production caps, almost every month since December of '21, but not meeting those limits. And it's sort of grown to the fact that now there's a shortfall between what they've been promising and what they've actually been producing of somewhere between 2 and 1/2 and 3 and 1/2 million barrels a day.

So it's very-- from a practical point of view, it's not clear how much of a practical effect this cut will have. But of course, from a psychological point of view, it's enormous. I mean, this is OPEC reasserting their control of a market that has as bad as supply problem from a global standpoint as I've ever seen in the 40 years that I've been covering oil.

So if you're going to try and beat down prices as the Europeans and Biden have been trying to do with Fed rate hikes and quantitative tightening, and of course, releases from the SPR, you do find that OPEC finally had had enough and was saying, look, we've got a fundamental market here that should support prices closer to three digits. And we don't like oil going under $80 a barrel. So they called an emergency meeting. And they've made a statement here saying they're going to try and prove to Biden and the Europeans that this is a supply problem and not really a price problem.

- And this ties closely to the relationship between the US and the Saudis. I believe it was several months ago, the Saudis announced a 100,000 barrels per day production cut. And I think that was an olive leaf to the Biden administration. It was only hours after that Biden announced that, yes, I'm going to meet with the Saudis for the first time here. What does this mean for the relationship with the US going forward when you have this level of disagreement?

DAN DICKER: Yeah. I mean, look, Biden is in a very interesting spot. And of course, the Saudis are an ally of the United States. And they rely on the United States for military supplies as well as support in other ways. But there is also the other side of the story, which nobody really wants to hear, is that Saudi Arabia is an oil economy. And at the times when they can't get the revenues out that they feel that they deserve, they generally have to make some moves to try and protect those revenues.

Now, Biden is coming up not only on trying to tackle a very bad inflation problem, but he also has midterms that are coming up. And high gas prices are a political nightmare. So he is trying to balance, again, these relationships that he has with Middle East allies along with political needs he has as well as economic needs he has to get inflation under control.

And, really, it's going to be a war here between what the United States and the EU can do with much of this monetary policy that's really pushing down all sorts of risk assets, including stocks, but of course, oil too, and what the Saudis and the rest of OPEC can do trying to protect their market by really cutting production and adding to what's already a very deep, deep supply problem.

- Dan, we got to leave it there. Always appreciate you stopping by. And thanks for sticking around here on the phone. Dan Dicker, founder of The Energy Word.