A tug of war has erupted on the world oil market.
Despite growing pressure from major crude-oil consuming nations, the Organization of Petroleum Exporting Countries and its allies in the expanded OPEC+ announced they would stick to their original plan by increasing output by only 400,000 barrels per day (bpd).
OPEC+ members seemed to be defying the growing political pressure on them, at least publicly.
After the virtual OPEC+ meeting on Thursday, Russian Deputy Prime Minister Alexander Novak underlined: “From August until now, we have added two million bpd of additional production to the market. So as planned, we are giving the market more and more volume, as it is recovering. At the same time, we also see there is a seasonal drop in demand in the fourth and first quarters of the year, and there are some signs such as a decrease in oil demand in the EU in October.”
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The OPEC+ decision was in sharp contrast to the demand from major crude consumers to increase output by at least double the planned volume.
The decision irritated some major global consumers, who are evaluating ways to retaliate. It prompted a quick response from the White House, which reiterated that it would consider “the full range of tools” to protect the economy. United States President Joe Biden hinted that additional actions were coming.
“We’ll see what happens on that score, sooner than later,” Biden said. Using strategic petroleum reserves (SPRs) and promoting shale output are just two cards the U.S., the world’s largest oil consumer, can use. Bob McNally, president of consultant Rapidan Energy Group and a former White House official, hinted: “An SPR release is the likeliest of options.”
Other strategies include insisting on steps to rejuvenate the shale sector. According to one of America’s biggest shale drillers, Biden should “back off” from domestic anti-oil policies if he wants to keep crude prices in check.
“The president is realizing all the efforts when he came into the office of stopping offshore leasing, stopping drilling on federal leases offshore, New Mexico, both in the Bakken and the Powder River, have started to backfire,” said Scott Sheffield, the CEO of Pioneer Natural Resources, in an interview with Bloomberg TV. “He’s got to back off his rhetoric on federal leases going forward.”
“I think OPEC+’s decision only increases the odds of an SPR release, possibly in co-ordination with other major oil consumers. Worth noting that production out of Russia and Saudi Arabia has largely recovered to pre-COVID levels, yet U.S. 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 U.S. shale production, the number of tools available to the Biden administration to mitigate and influence a worsening energy crisis might be limited, he added.
China is also getting impatient.
“China has responded by releasing volumes of strategic petroleum reserves, and the U.S. is discussing a similar manoeuvre, so if OPEC+ stays conservative, the market could expect some reactionary releases from the U.S. and China,” Rystad Energy oil market analyst Louise Dickson wrote.
The oil markets are in distress in part because global consumption had grown more rapidly than was anticipated. According to BP Plc., demand has bounced back to above the key level of 100 million bpd last seen before the COVID-19 pandemic. And the pandemic is not completely gone.
And with the climate-change rhetoric growing, OPEC+ is keeping a wary eye on possible retaliation by major consumers. They can’t afford it.
Behind the scenes, things are beginning to happen. Despite public posturing to the contrary, for the first time since the outbreak of COVID-19, the crude output of the OPEC kingpin Saudi Arabia is reportedly about to surpass 10 million bpd. This substantial jump in output dampened oil prices late last week.
Public posturing is a different ball game. Yet, to be fair, it’s difficult for major crude producers to defy the growing political pressure altogether. In the coming weeks and months, we could be in for some unannounced adjustments in the OPEC+ output policy.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.
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