THE Organization of the Petroleum Exporting Countries (OPEC) and other major oil producers on Wednesday decided to boost production in September at a pace much slower than in previous months at a time of high gasoline prices and unstable energy supplies exacerbated by Russia’s invasion of Ukraine.
The so-called OPEC+ alliance, led by Saudi Arabia and Russia, said it would increase output to 100,000 barrels a day next month after raising it by 648,000 barrels daily in July and August. The group considered what effects staggering inflation and rising Covid-19 rates may have on global demand for fuel in the fall.
It comes after United States President Joe Biden visited Saudi Arabia last month with the goal to improve relations and encourage more oil production from the cartel to lower pump prices. While gasoline prices have been falling, they remain high and pose a political problem to him as inflation surges.
No oil production agreement was announced, but Biden said he expected OPEC to take steps to increase production in the coming weeks. Those hopes didn’t materialize.
As a result, “the US may go looking for other sources of oil, whether it’s Venezuela or Iran,” said Jacques Rousseau, managing director at Clearview Energy Partners.
Biden’s administration also is encouraging the US oil and gas industry to increase production.
“You’ve just seen the second-quarter results from some of these companies. They are record profits,” Amos Hochstein, a senior adviser for energy security at the US State Department, said on CNBC. “They should be investing those dollars right back into production increases.”
Despite the modest increase announced by OPEC+, the administration was trying to highlight that prices were already falling and could fall further with more domestic production.
“We’re pretty pleased with what we’re seeing” on prices for oil and gas down from highs, but “we know that this is not enough,” Hochstein said.
A senior Biden administration official, who insisted on anonymity to discuss private conversations, called the OPEC+ announcement a step forward. The official said the group had restored all the production cuts it made in 2020 at the height of the coronavirus pandemic, when oil prices and demand plummeted.
The group has been gradually adding more oil and gas to the market as economies recovered.
Some OPEC member nations, such as Angola and Nigeria, have been producing less than the agreed-upon amount. Saudi Arabia and the United Arab Emirates, on the other hand, have the capacity to increase production.
OPEC’s decision appears to be an attempt to appease those countries that can’t produce more, Rousseau said.
“Any time you increase the target, there’s countries that can’t participate,” he added. “If you only raise production by 100,000 barrels a day, that’s just a small piece for everybody.”
As a result, the amount of oil on the market might not keep up with demand, so high oil prices may persist for some time.
While the US was probably hoping for a larger production increase, “in terms of overall supply/demand management, OPEC’s decision is logical,” Noah Barrett, research analyst for energy and utilities at Janus Henderson Investors, said in a note.
“There’s still a great deal of uncertainty on oil demand in the back half of this year, driven by questions around Chinese demand, and the potential for US or even a global recession,” he added.
The price of oil rose sharply after Russia invaded Ukraine on February 24. It fell somewhat since OPEC+ last met but rose modestly on Wednesday. A barrel of US benchmark crude was selling for just over $94, compared with more than $105 a barrel a month ago. Brent crude, the international standard, was selling for just over $100 a barrel, also down about $110 from a month ago.
Wednesday’s meeting was the OPEC+’s first official monthly meeting since its leader, Mohammad Sanusi Barkindo, died in his native Nigeria last month at age 63. Haitham al-Ghais, a veteran of the Kuwait Petroleum Corp., took over as the organization’s secretary general this week.