OPEC, led by Saudi Arabia, and its allies, led by Russia, said they would raise output to 100,000 barrels a day next month after raising it by 648,000 barrels a day in July and August. The team looked at the impact that staggering inflation and rising COVID-19 rates might have on global fuel demand in the fall. It comes after US President Joe Biden visited Saudi Arabia last month, aiming to improve relations and encourage more oil production from the cartel to reduce high prices at the pump. The average price of gasoline in the U.S. has fallen for 50 days in a row, according to price comparison website GasBuddy. While the increase in oil production will further push prices, the amount of new crude being released is less than US President Joe Biden had hoped for after his recent visit to Saudi Arabia. The Saudis refused to offer a commitment to pump more barrels at that meeting, so the government has since been trying to source more barrels from elsewhere. “The U.S. may look to other sources of oil, whether it’s Venezuela or Iran,” said Zac Rousseau, managing director of Clearview Energy Partners. Phillip Streible, chief market strategist at Blue Line Futures, told CBC News in an interview Wednesday that the OPEC news shows how quickly the oil market is changing. “It’s a bit disappointing – a 100,000 barrel increase – when they were looking for something bigger,” he said. “Maybe OPEC is worried [about] the possibility of recession”.
The US is trying to boost production
The Biden administration is also encouraging the US oil and gas industry to increase production. “You just saw the second-quarter results from some of these companies. They’re record earnings,” Amos Hochstein, senior energy security adviser at the State Department, told CNBC on Wednesday. “They should be investing those dollars right back into increasing production.” The OPEC+ coalition had cut production during the pandemic as oil prices and demand plummeted, and those cuts are set to expire in September. The group is gradually adding more oil and gas to the market as economies recover. Some OPEC nations, such as Angola and Nigeria, produce less than the agreed 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 countries that cannot produce more, Rousseau said. “Every time you raise the target, there are countries that cannot participate,” he added. “If you only increase production by 100,000 barrels a day, that’s just a small piece for everybody.”
High oil prices may persist
As a result, the amount of oil in the market may not keep pace with demand, so high oil prices may persist for some time. The price of oil rose sharply after Russia invaded Ukraine in February. It retreated somewhat from the last OPEC meeting, but rose modestly on Wednesday. A barrel of benchmark U.S. crude sold for just over $94 on Wednesday, compared with more than $105 a barrel a month ago. Brent crude, the international standard, traded just above $100 a barrel on Wednesday, also down about $110 from a month ago. Russia’s oil and gas exports to the world have fallen as many nations have imposed sanctions or restricted purchases from the main supplier over its invasion of Ukraine. Russia has also cut or cut off natural gas to a dozen European countries, further raising energy prices, squeezing citizens’ spending power and threatening to trigger a recession if nations can’t store enough natural gas to get them through the winter.
Change in OPEC leadership
It was the first official monthly meeting of the OPEC+ group since its leader, Mohammad Sanusi Barkindo, died aged 63 in his home country of Nigeria last month. Kuwait Petroleum Corporation veteran Haitham al-Ghais took over as OPEC secretary general this week. In the US, a gallon of regular gasoline sold for an average of $4.16 on Wednesday. That’s down significantly from June, when the national average topped $5 a gallon, but it’s still painfully high for many frontline workers and families, and about 31 percent higher than what drivers were paying a year ago.