NEW YORK (BLOOMBERG) – US President Joe Biden returned from Saudi Arabia last month confident that his visit had yielded a promise to cool oil prices. But on Wednesday (Aug 3), Opec+ offered only a token supply increase and signaled that its powers to help are limited.
The “further steps” from the Saudis on oil production the White House had predicted after Biden’s reconciliatory fist bump with Crown Prince Mohammad bin Salman turned out to be one of the smallest hikes in Opec’s six-decade history – 100,000 barrels a day extra in September from the group and its allies.
Such a small amount, just 1/1000th of global demand, offers little respite for consumers suffering the inflationary squeeze of oil prices and scant reward for the president’s diplomatic efforts.
Analysts said the increase was equal to only 86 seconds of global oil demand.
Explaining their rationale after their meeting, the Organization of Petroleum Exporting Countries and its allies highlighted a fundamental problem that explains why crude remains near US$100 a barrel in London.
Idle supplies in the Middle East are down to “razor-thin” levels of about 2 million barrels a day, or 2 per cent of world demand, according to the International Energy Agency. This “severely limited” spare production capacity should only be used with “great caution in response to severe supply disruptions,” Opec+ said in a statement.
Unwilling or unable to significantly boost production, Opec+ ended up offering next to nothing.
“Today’s decision will feed the narrative that there is little left in the Opec+ tank,” said Helima Croft, chief strategist at RBC Capital Markets LLC.
Biden administration officials said they were satisfied with the decision for September because Opec+ already fast-tracked supply increases in July and August. The Saudis pumped 10.78 million barrels a day last month, according to a Bloomberg survey, a level reached only on rare occasions.
“At the end of the day, we’re not looking at numbers of barrels,” Amos Hochstein, the State Department’s senior adviser for global energy security, said in an interview in Washington. “We’re looking at: Are oil prices coming down from their highs?”
After initially rising on the Opec+ decision, benchmark prices on Wednesday dropped after US data showed an unseasonable drop in gasoline demand. US West Texas Intermediate fell 4 per cent to US$90.66 per barrel, while Brent crude was down 3.7 per cent at US$96.78.
Refraining from a significant oil-supply boost may also have served other interests of Opec+, particularly its desire to preserve ties with Moscow. Before the meeting, delegates privately said they saw no need to compensate for sanctions on Russia, arguing that the country’s exports have remained robust despite measures targeting them.
After the meeting, Russian Deputy Prime Minister Alexander Novak told state Rossiya 24 TV that “uncertainties on the market that need to be taken into account,” such as new Covid-19 strains and restrictions on Russian petroleum sales. “Therefore, such cautious decisions are taken today.”