The small increase in OPEC+ production does not offer much comfort to consumers, hard hit by the surge in oil prices.
OPEC+ responded to months of diplomatic efforts by US President Joe Biden with one of the smallest increases in oil production in its history.
The cartel will add just 100,000 barrels per day of oil in September, providing the tight market with additional supplies at a much slower pace than in recent months, despite pressure from the White House to help cool prices.
The 23-nation alliance will divide that amount proportionately among members, and since only the Saudis and the United Arab Emirates can increase production, only a fraction of it is likely to be delivered. For July and August, the group promised to add more than 600,000 barrels per day to the market.
The increase offers little respite for consumers suffering from inflationary pressures from high oil prices. Brent crude erased earlier losses and was little changed at $100.59 a barrel as of 3:10 pm in London.
“From a global balance point, today’s small quota increase — the smallest since 1986 in absolute terms and the smallest in percentage terms — is noise,” said Bob McNally, president of the Washington-based consultancy Rapidan Energy Group and a former White House staffer. “However, if pump prices continue to fall, the White House will likely ask for credit.”
The ministers approved the proposal in an online meeting on Wednesday, according to a statement on OPEC’s website. There was no discussion on whether the Organization of the Petroleum Exporting Countries and its allies would continue to increase production in the coming months, delegates said. The group reunites on September 5.
After Biden’s visit to Saudi Arabia, US officials said they were optimistic that Riyadh and Washington were on the road to reconciliation. During his visit, when he greeted Crown Prince Mohammad bin Salman with a fist bump, the president said he expected further steps from the kingdom on oil production. Late on Tuesday, the US approved the sale of $3.05 billion worth of weapons, including Patriot missiles, to the Middle East heavyweight.
OPEC+ has shown some goodwill to consumers in recent months, accelerating production increases in July and August that completed the reversal of their Covid-era curbs. The Saudis boosted output to 10.78 million barrels a day last month, according to a Bloomberg survey, a level that rises only on rare occasions.
“We saw OPEC increase its supply in July and August, quite significantly, and now they’re continuing that,” Amos Hochstein, the State Department’s senior adviser on global energy security, said in an interview in Washington. “At the end of the day, we’re not looking at the number of barrels, we’re looking at: Are oil prices coming off their highs?”
There has been a “remarkable” drop in crude oil prices in recent months, but the Biden administration wants to see them lower even further, Hochstein said.
Fears of capacity
OPEC+ delegates said before the meeting that they did not see an immediate need to replace supplies from coalition member Russia, which have been steady despite sanctions over its incursion into Ukraine. Turning on the taps freely could also strain relations with Moscow.
“There are uncertainties in the market that need to be taken into account,” such as new strains of Covid and restrictions on Russian oil sales, Deputy Prime Minister Alexander Novak said in an interview with state broadcaster Rossiya 24. “That’s why such cautious decisions are being made today.”
Delegates also said before the meeting that the group’s limited reserves of spare production capacity were best saved for later in the year, when crude oil markets look set to tighten as the US winds down the release of reserve stocks. Dormant supplies in the Middle East have fallen to “razor-thin” levels of about 2 million barrels per day, or 2 percent of global demand, according to the International Energy Agency.
OPEC+ ministers noted in their closing communique after Wednesday’s meeting that “the severely limited availability of excess capacity necessitates its use with great caution.”
(Updates with the Russian Deputy Prime Minister in the third-last paragraph.)
– With assistance from Jonathan Ferro, Paul Wallace and Olga Thanas.
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