Last month, US President Joe Biden traveled to Saudi Arabia with the hope of securing a commitment to lower oil prices. On the other hand, OPEC+ indicated on Wednesday that its ability to assist is constrained by offering just a minimal boost in supplies.
After Biden’s rapprochement fist bump with Crown Prince Mohammad bin Salman, the White House predicted “further steps” from Saudi Arabia on oil production, but what happened was one of the most minor increases in OPEC’s six-decade history: 100,000 additional barrels per day in September from the organization and its allies.
Just 1/1000th of the world’s demand, this meager quantity offers consumers little relief from the inflationary pressure of rising oil prices and no compensation for the president’s diplomatic efforts. The Organization of Petroleum Exporting Countries and its partners outlined a significant issue that explains why petroleum remains close to $100 per barrel in London in their justifications following their summit.
According to the International Energy Agency, idle supplies in the Middle East are at “razor-thin” levels of roughly 2 million barrels per day, or 2% of global demand. According to a statement from OPEC+, this “severely constrained” reserve production capacity should only be used “with great caution in reaction to severe supply disruptions.” OPEC+ ultimately offered virtually nothing since it was unwilling or unable to considerably increase output.
Chief strategist at RBC Capital Markets LLC (TSE:RY), Helima Croft, said today’s decision would feed the narrative that there is little left in the OPEC+ tank.
Falling Prices
Officials from the Biden administration stated they were happy with the September decision because OPEC+ had already expedited production increases in July and August. According to a Bloomberg poll, the Saudis produced 10.78 million barrels per day last month, a quantity that was only occasionally attained. Benchmark prices fell after initially increasing in response to the OPEC+ agreement as US data revealed an unexpected decline in fuel demand. At 5:56 p.m. on Wednesday, Brent crude was down 3.2 % at $97.36 per barrel.
Avoiding a significant increase in oil output may have also benefited OPEC+’s other objectives, particularly its desire to maintain relations with Moscow. Before the conference, members privately expressed their view that compensating for the sanctions against Russia was unnecessary, claiming that the nation’s exports have continued to grow despite the measures taken against them.
Political Failure
The White House’s efforts to increase oil production were criticized by many who did not believe the Biden administration could make any progress in this regard. The visit by Biden to Saudi Arabia represented a significant policy shift.
The president had promised to hold the monarchy accountable for the murder of journalist Jamal Khashoggi in 2018. Still, the significance of the long-standing alliance with Riyadh has come to light in light of the disruption to energy supplies caused by Russia’s invasion of Ukraine. Late on Tuesday, the US approved the sale of $3.05 billion worth of arms to the dominant force in the Middle East, including Patriot missiles.
Washington-based director of policy research at brokerage BTIG, Isaac Boltansky, said it’s hard to overstate this OPEC+ decision’s disappointing for the Biden administration. Frankly, it’s the geopolitical equivalent of a slap in the face, he added.
Featured Image: Megapixl © Hansenn
