The group of oil producers known as OPEC Plus approved a small increase in production on Wednesday, just over two weeks after President Biden’s visit Crown Prince Mohammed bin Salman from Saudi Arabia to seek assurances that the group would act to cool oil markets.
The Organization of the Petroleum Exporting Countries and its allies said they would increase production 100,000 barrels a day in September, well below the nearly 650,000 barrels a day the group agreed to add in July and August. OPEC Plus has now raised production at more or less pre-pandemic levelsBut global oil supplies remain low and high energy prices have helped fuel inflation around the world.
Politically, the paltry increase in production (less than a tenth of 1 percent of global oil demand, the smallest increase in living memory) would appear to be a snub from Biden, who went to Saudi Arabia looking for additional production from major oil producers. in the Middle East to lower gasoline prices. Raad Alkadiri, managing director for energy and climate at Eurasia Group, said the increase was so small it didn’t really make sense.
“It’s a rounding error at best,” he said, similar to Saudi Arabia’s dismissal of the White House saying, “There you go, we’ve given you 100,000 barrels a day. Now get away from our backs. He said the move would not ease prices, nor was it a sign of an immediate intention to deliver more barrels to global markets.
Saudi Arabia’s decision not to increase production further was based on its own political and national security interests, not those of Washington, Alkadiri said. Saudi Arabia’s ability to significantly increase production is limited, he added, and “for the Saudis to be able to play their role as the central bank for oil, they need to make sure they have significant volumes to bring in in the event of an emergency. .”
U.S officials have said they expect OPEC Plus, which has Russia as co-chair, to increase production in the coming months. Ed Morse, global head of commodities research at Citigroup, said Biden had likely gone to the meeting with the crown prince with the understanding that Saudi Arabia, OPEC’s de facto leader, would not agree to any significant increases in production. .
The White House downplayed the significance of the meager increase, pointing to the largest production increase approved during the summer before the visit and noting that gas prices have already been falling. Either way, Biden aides said, there were important issues that justified the president’s trip to Saudi Arabia beyond energy.
“It was important to go,” said Karine Jean-Pierre, the White House press secretary, pointing to an example of a ceasefire in the long-running war in Yemen that has just escalated with the support of Saudi Arabia. “We are saving thousands of lives, so that matters too. So we think the trip was definitely worth it.”
Oil prices rose immediately after the announcement, but later fell more than 3 percent. Oil prices have fallen from recent peaks but remain high, buoyed by sanctions on the Russian economy due to its invasion of Ukraine. Brent crude, the international benchmark, hovered $97 a barreland West Texas Intermediate, the US benchmark, was around $90. A year ago, oil was trading between $60 and $70 a barrel.
Analysts expressed concerns about weaker energy demand as economic growth slowed and central banks high interest rates to combat inflation, it could also have dissuaded the cartel from significantly increasing production.
Damien Courvalin, head of energy research at Goldman Sachs, said the decision reflected widespread uncertainty about the state of the oil market, including the risk of a recession and lower demand from China.
“Is that an environment where you would want to do a lot more?” he said. “From his perspective, it’s a justifiable and cautious approach.” He also cited the risks of falling output from Russia, Libya and Iraq.
The move also reflected limitations on the group’s ability to deliver more production, analysts said. Many of its 23 members are no longer meeting production targets due to lack of investment in production capacity. OPEC Plus said in a statement that the availability of additional capacity was “severely limited” due to a chronic lack of investment in the oil sector.
It’s not yet clear what effect Western sanctions will have on Russia’s oil production, said Caroline Bain, chief commodity economist at Capital Economics. Production could drop significantly over the next year, not only because Russia struggles to find buyers for its crude, but also because of a lack of access to Western technology, spare parts or financing in some cases.
But increased production from OPEC and its allies in the coming months, combined with lower demand due to a looming recession in Europe and a slowdown in the United States, would help push prices down, Bain said.
“Not only do we have lower growth on the horizon, but we also have high inflation, which is going to eat into disposable income and give people less money to spend on discretionary goods and travel,” he said. “If you’re a family of four, maybe don’t go for a walk to the beach because it’s going to cost a lot.”
pedro baker contributed report.