OPEC+ members agreed to increase oil production to balance Russian production losses. This will reduce rising oil prices and inflation and allow President Biden to visit Riyadh.
OPEC+ has announced that it will increase its production by 648,000 BPD (barrels/day) in July – 0.7% of international requirement and a similar quantity for august compared with the original strategy to increase 432,000 BPD per month for three months till September.
This is what Saudi Arabia and The Organization of the Petroleum Exporting Countries will see as a signal. They are ready to produce more oil after months-long Western pressure to reduce global energy scarcity.
After the news, oil prices rose to $117 per barrel. Analysts believe that the increase in oil production will not be significant since all OPEC member countries, except for Saudi Arabia and UAE, are already producing at full capacity. In 2008, oil was at its highest at $147 per barrel. Russia’s output has dropped by approximately 1 million barrels per day due to Western sanctions against Moscow.
Following two years of tensions over U.S. arms supply to the kingdom, U.S. diplomats worked hard for weeks to arrange Biden’s first trip in Riyadh.
U.S. intelligence accuses Mohammed bin Salman, Saudi Crown prince, of applauding the murder of Jamal Khashoggi. The prince refutes the accusation.
The opposition of the Biden administration to the armed operation against Yemen and failures by the Gulf to address concerns about Iran’s missile program were frustrating to Saudi Arabia and its neighbor, the United Arab Emirates.
The Russia-Ukraine war is causing a tight oil market. The U.S. administration sought supplies from Saudi Arabia and Iran. U.S. sanctions have limited Iran’s production; Venezuela is also under U.S. sanctions.
BIDEN’S APPROVAL RATINGS
As Biden nears the midterm elections, his approval ratings are impacted by skyrocketing gas prices. Biden has so far refused to deal with MbS, the de facto ruler of Saudi Arabia.
A source of the matter says that Washington needs clarity about oil production plans ahead of a possible Biden trip to Riyadh to meet with leaders from the Gulf Arab countries, including MBS.
A source close to the discussions about Biden’s visit said that the concern was more than oil production. The source stated that Washington and Riyadh were more open to hearing each other’s concerns.
The White House appreciated Thursday’s decision and acknowledged Saudi Arabia’s role in achieving the Organization of the Petroleum Exporting Countries consensus.
Industry estimates suggest that sanctions from the West may cause Russia’s second-largest oil exporter to cut its production by 2 and 3 million BPD.
Russia’s April output of 9.3 million BPD was lower than the 10.44 million BPD OPEC+ goal.
A diplomat from the West said that Russia might be open to other members of OPEC+ helping to fill the gap in their output. This would maintain unity in the group and retain support from the Gulf. In relation to the Ukraine war, the Gulf has been neutral.
OPEC+ pledged to reduce output by a record amount in 2020 because of the pandemic that hampered demand.
Saudi Arabia has a production capacity of 10.5 million, but it has never been able to sustain a sustained production level higher than 11million. Riyadh claims that it plans to increase its nameplate capacities from the 12.4million currently produced by 2027 to 13.4 million BPD.
The UAE is the only OPEC country that has significant oil production potential. OPEC’s spare capacity is less than 2,000,000 BPD.
Amrita Sen, co-founder and CEO of Energy Aspects, said that the real increase in production over July-August would have been around 560,000 bpd compared to the planned 1.33 million. Because most members have already reached maximum production, this is why it is so.
She stated that these volumes would barely make up the market deficit. “
