The OPEC oil cartel and its allies decided Wednesday to boost production in September by a much slower pace than in previous months at a time of high gasoline prices and unstable energy supplies exacerbated by the war Russia is waging in Ukraine.
OPEC, led by Saudi Arabia, and its allies, led by Russia, said they will increase output to 100,000 barrels a day next month after raising it by 648,000 barrels per day 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 U.S. President Joe Biden visited Saudi Arabia last month, aiming to improve relations and encourage more oil production from the cartel to draw down 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 an increase in oil production will push down prices even more, the amount of new crude being released is less than U.S. President Joe Biden was hoping for after his recent visit to Saudi Arabia.
The Saudis declined to offer a commitment to pump more at that meeting, which is why the administration has been trying to source more barrels elsewhere ever since.
“The U.S. may go looking for other sources of oil, whether it’s Venezuela or Iran,” said Jacques Rousseau, managing director at 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 little disappointing — a 100,000 barrel increase — when they were looking for something larger,” he said.
“Maybe OPEC is concerned [about] the possibility of a recession.”
U.S. trying to boost output
Biden’s administration also is encouraging the U.S. 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 State Department, said Wednesday on CNBC. “They should be investing those dollars right back into production increases.”
The OPEC+ coalition had curtailed production during the pandemic as oil prices and demand plummeted, and those cuts are due to expire in September. The group has been gradually adding more oil and gas to the market as economies recover.
Some OPEC nations, such as Angola and Nigeria, have been producing less than the agreed-upon amount. Saudi Arabia and 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 per day, that’s just a small piece for everybody.”
High oil prices may persist
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.
The price of oil rose sharply after Russia invaded Ukraine in February. It fell somewhat since OPEC last met, but rose modestly Wednesday.
A barrel of U.S. benchmark crude was selling for just over $94 US Wednesday, compared with more than $105 per barrel a month ago. Brent crude, the international standard, was selling for just over $100 a barrel Wednesday, also down about $110 from a month ago.
Russia’s oil and natural gas exports to the world have declined as many nations imposed sanctions or curtailed buying from the major supplier due to its invasion of Ukraine.
Russia also has reduced or cut off natural gas to a dozen European countries, further driving up energy prices, squeezing people’s spending power and threatening to cause a recession if nations can’t stockpile enough gas to get 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 at age 63 in his home country of Nigeria last month.
Haitham al-Ghais, a veteran of the Kuwait Petroleum Corporation, took over as secretary general of OPEC this week.
In the U.S., a gallon of regular gasoline was selling for $4.16 on average Wednesday.
That’s substantially lower than in June, when the nationwide average surpassed $5 a gallon, but it’s still painfully high for many frontline workers and families to afford and about 31 per cent higher than what drivers were paying a year ago.