The group of oil-producing countries known as OPEC Plus on Thursday agreed to a bigger-than-expected supply increase for July and August.
The higher production was hailed by the White House as a diplomatic breakthrough after months of lobbying Middle Eastern oil giants to increase production to ease price pressures. But the amount of crude added was unlikely to drive gasoline prices down. In fact, the price of oil rose after the meeting.
After a videoconference, the group said it would increase production by 648,000 barrels per day in July and then again in August, an increase of around 50% compared to the monthly increase set under a program Last year. In fact, what OPEC Plus does is compress three months of projected increases into two months.
But the OPEC Plus member countries are not expected to generate this production when the time comes. Many producers have already exhausted their additional production capacity. Only Saudi Arabia, the United Arab Emirates and one or two other countries have more oil to add.
Whatever they add, they risk being offset by what is happening in Russia. Russian production is in decline following Western sanctions imposed after the invasion of Ukraine. According to the International Energy Agency, Russia is producing about 1.7 million barrels per day below its target of 10.8 million barrels per day for July. Further cuts in Russian production are expected later this year as the European Union’s effort to halt most Russian oil purchases takes effect.
Although the amount of additional oil is not significant, some analysts say that OPEC Plus’s willingness to deviate from its previous routine could be the start of a breakthrough, leading to greater cooperation from the government. Saudi Arabia and other countries like the United Arab Emirates. while sanctions reduce Russian production.
Until recently, these countries insisted that they could not deviate from the timetable agreed by OPEC Plus last July. The break comes after diplomatic work by Amos Hochstein, the State Department’s special envoy and coordinator for international energy affairs, and other diplomats.
“It’s more important to see this in terms of the policy signal it’s sending than the actual number of barrels it’s adding,” said Bill Farren-Price, head of macro oil and gas research at research firm Enverus. . This suggests, he said, that Saudi Arabia “may be more prepared to increase supply” as sanctions further reduce Russian production.
With growing constraints on Russian production and exports, a reorganization of the global energy market is underway. The Saudis and other OPEC Plus members with extra oil to produce could benefit. On the other hand, some analysts say even the Saudis and the United Arab Emirates could be approaching the limits of how much oil they can produce.
OPEC Plus suggested in a press release that it was responding to a reopening of shutdowns in countries like China. Pressure from Washington for increased supply to meet rising prices was not mentioned.
The Saudis are trying to improve relations with the Biden administration, which wants to prevent soaring oil prices from alienating American voters in the midterm elections and hurting the economies of the United States and other countries. . But Riyadh also does not seem to want to break its five-year alliance on oil issues with Moscow, co-leader of OPEC Plus.
Oil prices, which had fallen before the meeting, rose after OPEC Plus announced West Texas Intermediate crude, the U.S. benchmark, up more than 1% to nearly $117 a barrel.
Nonetheless, the OPEC Plus decision received praise from the White House.
“The United States welcomes today’s important decision by OPEC Plus to increase supply by more than 200,000 barrels per day in July and August based on new market conditions,” the statement said. White House press secretary Karine Jean-Pierre in a statement.
The Russian-Ukrainian War and the World Economy
A large-scale conflict. Russia’s invasion of Ukraine had a ripple effect around the world, adding to the woes of the stock market. The conflict has caused skyrocketing gas prices and product shortages, and is pushing Europe to reconsider its dependence on Russian energy sources.
A visit by President Biden to Saudi Arabia is being considered, but the White House has not confirmed any plans. Asked about the possibility of a trip, Ms Jean-Pierre said on Wednesday that Mr Biden was keeping his vow to make Saudi Arabia a pariah after the brutal murder of journalist Jamal Khashoggi in 2018.
“I don’t have a visit to plan and I don’t have a trip to announce,” she said.
While the Saudis have so far shrugged off demands for more oil, blaming high prices on geopolitics and refining capacity shortages, analysts say they may now fear genuine shortages that could hurt the economy. global economy and reducing demand are on the horizon.
In August, OPEC Plus will, at least theoretically, be back to pre-pandemic production levels. Analysts say this moment could be an opportunity for the organization to reassess issues such as production quotas or even Russia’s role in the organization.
The Saudis recruited Russia to join OPEC in 2016 because it was one of the world’s three largest producers, along with Saudi Arabia and the United States. Today, because of the invasion of Ukraine, “Russia’s days as an energy superpower are dwindling,” said Daniel Yergin, the energy historian, in a recent interview.
On the other hand, some analysts say the Saudis have invested too much in their relationship with Russia to give it up.
“They are not going to abandon Russia,” said Amrita Sen, head of oil markets at Energy Aspects, a research firm, referring to the Saudis. “They’re doing a bit at the request of the United States. That’s all.”