Wednesday August 03, 2022
Opec+ oil production boost to be slower than earlier months
Photo used for illustrative purpose.
The Opec and its allies decided on 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 Russiaâ€™s war 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 US President Joe Biden visited Saudi Arabia last month, aiming to encourage more oil production from the group to draw down high prices at the pump. While gasoline prices have been falling, they are still high and posing a political problem for him as inflation surges.
No oil production agreement was announced, but Biden said he expected Opec to take steps to increase production in the coming weeks.
Bidenâ€™s administration also is encouraging the US oil and gas industry to increase production.
â€œYouâ€™ve just seen the second-quarter results from some of these companies. They are record profits,â€ Amos Hochstein, a senior adviser for energy security at the State Department, said Wednesday on CNBC. â€œThey should be investing those dollars right back into production increases.â€
Despite the modest increase announced by Opec+, the administration was trying to highlight that prices are already falling and could fall further with more domestic production.
â€œWeâ€™re pretty pleased with what weâ€™re seeingâ€ on prices for oil and gas down from highs, but â€œwe know that this is not enough,â€ Hochstein said.
A senior Biden administration official, who insisted on anonymity to discuss private conversations, called the Opec+ announcement a step forward. The official said the group has restored all the production cuts it made in 2020 during the depths of the pandemic, when oil prices and demand plummeted.
The group has been gradually adding more oil and gas to the market as economies recovered.
Some Opec nations, such as Angola and Nigeria, have been producing less than the agreed-upon amount. Opecâ€™s decision appears to be an attempt to appease those countries that canâ€™t produce more, Rousseau said.
â€œAny time you increase the target, thereâ€™s countries that canâ€™t participate,â€ he added. â€œIf you only raise production by 100,000 barrels per day, thatâ€™s just a small piece for everybody.â€
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 US benchmark crude was selling for just over $94, compared with more than $105 per barrel a month ago. Brent crude, the international standard, was selling for just over $100 a barrel, also down about $110 from a month ago.
Russiaâ€™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 peopleâ€™s spending power and threatening to cause a recession if nations canâ€™t stockpile enough natural gas to get through the winter.
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 US, a gallon of regular gasoline was selling for $4.16 on average Wednesday. Thatâ€™s substantially lower than in June, when the nationwide average surpassed $5 a gallon, but itâ€™s still painfully high for many front-line workers and families to afford and about 31% higher than what drivers were paying a year ago.
Oil prices slid 1.5% on Wednesday as US crude stockpiles unexpectedly surged higher last week and after Opec+ said it would raise its oil output target by only 100,000 barrels per day (bpd).
Brent crude futures were down $1.23, or 1.2%, at $99.31 a barrel by 1442 GMT. West Texas Intermediate (WTI) crude futures slipped by $1.42, or 1.5%, to $92.97. Both contracts had seesawed previously.
The premium for front-month Brent futures over barrels loading in six monthsâ€™ time is at a three-month low, indicating concern over tight supply are abating. The premium for WTI futures for the same monthsÂ touched a near four-month low.
US crude stocks rose 4.5 million barrels last week to 426.55 million barrels, according to data from the US Energy Information Administration, compared with an analyst forecast for a draw of 600,000 barrels.
Industry data late Tuesday showed a smaller weekly US crude build of 2.2 million barrels, traders said.
Ministers for the Organization of the Petroleum Exporting Countries (Opec) and allies including Russia, known as Opec+, agreed to the small increase to the groupâ€™s output target, equal to about 0.1% of global oil demand.