OPEC+ is set to raise its oil output goal by 100,000 barrels per day, an amount analysts said was far below the expectation of U.S. President Joe Biden after his trip to Saudi Arabia.
During the trip, Biden asked the Saudis to pump more to help
the United States and the global economy.
The increase, equivalent to 0.1% of global demand, follows
weeks of speculation that Biden’s trip to the Middle East and Washington’s
clearance of missile defence system sales to Riyadh and the United Arab
Emirates will bring more oil to the world market.
“That is so little as to be meaningless. From a physical
standpoint, it is a marginal blip. As a political gesture, it is almost
insulting,” said Raad Alkadiri, managing director for energy, climate, and
sustainability at Eurasia Group.
The increase of 100,000 bpd will be one of the smallest
since OPEC quotas were introduced in 1982, OPEC data shows.
“This is a smaller increase but an increase nonetheless,”
Amos Hochstein, senior U.S. State Department adviser for energy security, told
CNN.
Hochstein said OPEC had already delivered larger increases
in two of the three previous months.
“I think we’re focused much more on the bottom line, and
that is reducing the price of oil in the market,” Hochstein said, adding that
U.S. gasoline prices fell well below $4 per gallon.
The Organization of the Petroleum Exporting Countries and
its allies, led by Russia, a group known as OPEC+ that formed in 2017, had been
increasing production by about 430,000-650,000 bpd a month, as they unwound
record supply cuts introduced when pandemic lockdowns choked off demand.
They had, however, struggled to meet full targets as most
members have exhausted their output potential following years of
under-investment in new capacity.
Combined with disruption linked to Russia’s invasion of
Ukraine in February, the lack of spare supply has driven up energy markets and
spurred inflation.
REPAIRING TIES
With U.S. inflation around 40-year highs and Biden’s
approval ratings under threat unless gasoline prices fall, the president
travelled to Riyadh last month to mend ties with Saudi Arabia, which collapsed
after the murder of journalist Jamal Khashoggi four years ago.
Saudi de-facto ruler, Crown Prince Mohammed bin Salman, whom
Western intelligence accused of being behind the Khashoggi murder – which he
denies – also travelled to France last month as part of efforts to rebuild ties
with the West.
On Tuesday, Washington approved $5.3 billion worth of
defensive missile system sales to the UAE and Saudi Arabia but it has yet to
roll back its ban on offensive weapon sales to Riyadh.
OPEC+, which will next meet on Sept. 5, said in a statement
that limited spare capacity requires it to be used with great caution in
response to severe supply disruptions.
It also said a chronic lack of investment in the oil sector
will impact adequate supply to meet growing demand beyond 2023.
Sources within OPEC+, speaking on condition of anonymity,
also cited a need for cooperation with Russia as part of the wider OPEC+ group.
“(This decision) is to calm down the United States. And not
too big that it upsets Russia,” said an OPEC+ source.
Benchmark Brent oil futures jumped by around $2 per barrel
after OPEC’s decision to trade close to $101 per barrel.
Shortly after Russia’s invasion of Ukraine, which Moscow
terms a “special military operation”, oil prices rose to their highest in 14
years.
By September, OPEC+ was meant to have wound down all of the
record production cuts it implemented in 2020 in response to the impact of the
pandemic.
But by June, OPEC+ production was almost 3 million barrels
per day below its quotas as sanctions on some members and low investment by
others crippled its ability to boost output.
Only Saudi Arabia and the UAE are believed to have some
spare capacity.
French President Emmanuel Macron has said he had been told
that Saudi Arabia and the UAE had very limited ability to increase oil
production.
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