OPEC+ authorizes a slight increase in oil output as a rebuke to Biden

OPEC+ is planning to increase its oil output target by 100,000 barrels per day, a figure that observers deemed an insult to US President Joe Biden following his trip to Saudi Arabia to encourage the producer group’s head to pump more oil to boost the United States and the world economy.

The surge, equivalent to 86 seconds of daily global oil consumption, followed weeks of speculation that Vice President Biden’s trip to the Middle East and Washington’s approval of missile defense system sales to Riyadh and the United Arab Emirates would bring additional oil to the global market.

“That is so trivial as to be without significance. Physically speaking, it is an insignificant blip. But, as a political gesture, it is nearly disrespectful, according to Raad Alkadiri, managing director for energy, climate, and sustainability at Eurasia Group.

According to OPEC figures, the increase of 100,000 BPD will be one of the smallest since the introduction of OPEC quotas in 1982.

The Organisation of Petroleum Exporting Countries and its allies, led by Russia, a group known as OPEC+ formed in 2017, had been increasing production by between 430,000 and 650,000 barrels per day (BPD) per month as they reversed record supply cuts implemented when the pandemic lockdowns stifled demand.

As a result of years of underinvestment in new capacity, most members had exhausted their output potential, making it difficult for them to accomplish all of their goals.

In conjunction with the disruptions caused by Russia’s invasion of Ukraine in February, the shortage of spare supply has pushed up energy prices and stoked inflation.

Mending Relationship

With US inflation near 40-year highs and Biden’s approval ratings in jeopardy, unless fuel prices decrease, the president traveled to Riyadh last month to repair relations with Saudi Arabia, which had deteriorated since the murder of journalist Jamal Khashoggi four years prior.

Crown Prince Mohammed bin Salman, the de facto ruler of Saudi Arabia, accused by Western intelligence of being behind the murder of Jamal Khashoggi — a charge he rejects — traveled to France last month as part of efforts to restore ties with the West.

On Tuesday, the United States authorized selling $5.3 billion of defensive missile systems to the United Arab Emirates and Saudi Arabia. Still, it has yet to lift its embargo on offensive weapon sales to Riyadh.

OPEC+, whose next meeting is scheduled for September 5, stated that its limited spare capacity necessitates extreme prudence when responding to significant supply disruptions.

In addition, it was stated that a chronic lack of investment in the oil sector will affect its ability to satisfy rising demand beyond 2023. OPEC+ sources, speaking anonymously, also underlined the need for collaboration with Russia as part of the larger OPEC+ group.

(This action) is intended to reassure the United States. And not so large as to offend Russia, according to an OPEC+ source. Benchmark Brent oil prices LCOc1 increased by almost $2 per barrel following OPEC’s decision to trade near $101 per barrel. O/R

Shortly after Russia invaded Ukraine, which Moscow described as a “special military operation,” oil prices reached a 14-year high. OPEC+ was supposed to have eliminated all of its record production cuts in 2020 due to the pandemic by September.

In June, however, OPEC+ production was nearly 3 million barrels per day below its mandates, as sanctions on some members and limited investment by others damaged the organization’s capacity to increase output.

It is estimated that only Saudi Arabia and the UAE have extra capacity.

According to French President Emmanuel Macron, Saudi Arabia and the UAE have little capacity to boost oil output.