Analysts believe that OPEC+ will increase oil production by a small 100,000 barrels per hour. This is in direct insult to President Joe Biden, who travelled to Saudi Arabia last month to convince OPEC’s leader to pump more oil to support the U.S. economy.
This increase is equivalent to 86 seconds of global oil demand. This is only a small fraction of the output of its members and would not increase Saudi Arabia’s target enough to fill one supertanker per month.
It comes after weeks-long speculation that Biden’s trip to the Middle East and Washington clearing missile defense system sales to Riyadh, and the United Arab Emirates, will result in more oil.
An OPEC+ document revealed that the group was to increase output by 100,000 bpd starting in September. Reuters report that two sources claimed it had been rubber-stamped at a closed-door meeting.
“That is so small as to be meaningless. It is a minor blip from a physical perspective. It is almost offensive as a political gesture,” Raad Alkadiri (Managing Director for Energy, Climate, and Sustainability at Eurasia Group) said.
OPEC and its allies, led by Russia, have previously increased production by approximately 430,000-650,000 bpd per month. However, they have not been able to reach their full target as many members have exhausted their output potential.
The United States is putting pressure on OPEC leaders Saudi Arabian and the United Arab Emirates to pump more oil in order to rein in rising prices, boosted by rebounding interest and Moscow’s invasion of Ukraine.
U.S. and Western sanctions against Russia have led to a surge in energy prices, which has resulted in an inflation rate at multi-decade levels and central bank interest rates rising.
Biden travelled to Riyadh last week to rekindle ties with Saudi Arabia after it collapsed four years ago following the assassination of Jamal Khashoggi.
U.S. inflation reached 40-year highs in this year’s the United States and threatens Biden’s approval ratings unless gasoline costs fall.
Crown Prince Mohammed bin Salman of Saudi Arabia, the de facto ruler and Western intelligence suspect of the Kashoggi assassination, travelled to France last month in an effort to strengthen ties with the West.
Washington approved defense missile sales of $5.3 billion to Saudi Arabia and the UAE on Tuesday. However, it has not lifted its ban on offensive weapons sales to Riyadh.
OPEC has not switched to larger output increases because group sources have cited a shortage of spare capacity among members to increase more barrels and the need to further cooperate with Russia as part of the wider OPEC+ group.
Benchmark Brent oil futures rose by $3 per barrel following OPEC’s Wednesday decision and traded close to $102 per bar.
OPEC+ had to be able to reduce all the production cuts that it made in 2020, after the pandemic which slashed the demand, by September.
However, OPEC+ had a production of almost 3 million barrels per hour below its quotas by June. This was due to sanctions against some members and low investments by others. Its ability to increase output was severely affected. Continue reading
Saudi Arabia and the UAE have an estimated surplus capacity to increase production.
Emmanuel Macron, the French president, has stated that he was told by Saudi Arabia and UAE that they had limited capacity to increase oil production.
