The cartel agreed to stick to its original plan to hike output by 400,000 bpd, rejecting calls to loosen the taps to cool prices.
In the United States, consumers are looking at higher heating bills this winter, while across the nation, the price of gasoline is up by at least $1.30 per gallon compared to last year and growing [File: Angus Mordant/Reuters]
OPEC and its allies on Thursday decided to stick to their original plan to boost output by 400,000 barrels per day (bpd), rejecting pleas by United States President Joe Biden to pump more oil to cool red-hot energy prices.
The US, Japan and India had urged the Organization of the Petroleum Exporting Countries and its allies led by Russia, a grouping known as OPEC+, to boost crude production to meet surging demand as nations around the world roll back COVID-19 restrictions and ramp up production.
“The current demand-supply mismatch has pushed oil prices above $80 per barrel [for] Brent for more than a month, which has been a short-term boon for OPEC+ producers but pain for consumers, in particular countries worried about inflation and post-pandemic economic growth,” Senior Oil Markets Analyst at Rystad Energy Louise Dickson said in a note.
Following Thursday’s news, global benchmark Brent crude futures were up 0.30 percent at $82.24 per gallon as of 11:18am in New York (15:18 GMT). US West Texas Intermediate futures were down 0.16 percent at $80.73 per barrel.
Last year, OPEC+ dramatically slashed production in response to gutted oil demand. In August, it started ramping up production by 400,000 barrels per day. Under the current plan, all of last year’s cuts should be phased out by September 2022.
But that timetable does little to help alleviate the current global energy crunch, which is set to grow more painful as the Northern Hemisphere enters the winter months.
In the US, consumers are looking at higher heating bills this winter, while across the nation, the price of gasoline is up by at least $1.30 per gallon compared to last year and growing.
Analysts say the squeeze on US consumers could prompt the US to tap emergency oil stockpiles.
“I think OPEC+’s decision only increases the odds of an SPR [Strategic Petroleum Reserve] release, possibly in coordination with other major oil consumers. Worth noting that production out of Russia and Saudi Arabia has largely recovered to pre-COVID levels, yet US production has not,” Reed Blakemore, deputy director of the Atlantic Council’s Global Energy Center, told Al Jazeera.
This underscores that in the absence of strong US shale production prior to the pandemic, the number of tools available to the Biden administration to mitigate and influence a worsening energy crisis might be limited, he added.
“Moving forward, the current debate in the shale patch of ‘capital discipline versus production off of margins’ will increasingly take on policy-driven elements of energy security, especially should a cold winter arrive and the energy crisis deepen,” Blakemore said.
That may make the response of the Biden Administration all the more complicated. Other countries facing an energy crunch have already taken extraordinary steps to meet demand.
“China has responded to high commodity prices by releasing volumes of strategic petroleum reserves, and the US is discussing a similar maneuver, so if OPEC+ stays conservative, the market could expect some reactionary releases from the US and China,” Dickson of Rystad wrote.
Even before the meeting, OPEC+ giants Saudi Arabia and Russia, as well as smaller members Iraq, Kuwait, and UAE, all said they would stick with the current production schedule.
“We had always suspected that OPEC+ would leave its proposed quotas unchanged this month, despite loud calls for higher production from many countries, including the US, Japan and India,” Caroline Bain, chief commodities economist at Capital Economics, wrote in a note on Thursday.
Some OPEC+ members including Nigeria and Angola are struggling to meet their own output quotas due to lack of investment and faltering infrastructure. If OPEC+ were to boost output, those countries would lose revenue. That would likely result in lower oil prices, Bain wrote.
“Prices of over $80 per barrel are, of course, another reason why OPEC+ will not be in any hurry to add supply to the market, particularly given that US producers have shown little inclination to raise output,” she added.
Capital Economics forecasts that the gradual increase in OPEC+ output over the course of next year, along with growth in non-OPEC oil output, will flip the oil market into a surplus. It projects the price of Brent will fall to around $60 per barrel at the end of 2022.