OPEC-Plus, the consortium of global oil producers led by Saudi Arabia in partnership with Russia, agreed on Wednesday to only a modest increase in production next month.
The decision suggests the cartel is focused more on the specter of declining demand amid recession warnings than on U.S. President Biden’s plea for greater output to address lofty prices, analysts at ClearView Energy Partners LLC said. With inflation elevated, central banks are hiking interest rates rapidly. Historically, when this happens, economies tilt into recession.
Several OPEC-Plus members also have struggled to ramp up production because of aging infrastructure and political turmoil, factors that cartel officials noted in a release.
The group agreed to lift output by 100,000 b/d in September, bringing its total production target back to pre-pandemic levels after a long recovery from the depths of the pandemic in 2020.
But global oil supplies remain low – including in the United States – and therefore prices are high. While Brent crude this week hovered around $100/bbl, down from more than $120 earlier in the year, the international benchmark remained up nearly 30% on the year.
Gasoline prices, by extension, are elevated. This is why Biden has called on both U.S. producers and OPEC-Plus to further increase output into the fall. The president in July visited Saudi Arabia to press the case.
“Today’s decision appears to have fallen well short of hopes,” analysts at ClearView said Wednesday of Biden’s pilgrimage to the Kingdom.
OPEC-plus targeted output growth of 648,000 b/d in July and August. It marked an increase from the roughly 430,000 b/d jump it targeted for June. But the group acknowledged that it fell short of its June goal, and its targets for the summer overall may come up light.
This is in part because of Russia following its invasion of Ukraine. Western sanctions against Russia have gradually hampered its financial health and likely long-term production ability, according to Rystad Energy’s Daria Melnik, senior analyst.
U.S. production, meanwhile, was flat for the week ended July 29, the U.S. Energy Information Administration (EIA) said Wednesday in its Weekly Petroleum Status Report.
Producers churned out an average over 12.1 million b/d. That was on par with not only the prior week but also the 2022 peak. Still, production remains about 1 million b/d below the pre-pandemic high in early 2020.
Total petroleum demand last week also was essentially flat, holding just shy of 20 million b/d, with gasoline consumption dipping lower amid persistently high prices at the pump. Other oil categories gained.
Imports climbed during the week, easing pressure on U.S. commercial crude inventories. Excluding those in the Strategic Petroleum Reserve (SPR), stocks last week increased by 4.5 million bbl from the previous week. A planned release from the SPR also bolstered inventories.
At 426.6 million bbl, however, stocks are 7% below the five-year average.
What’s more, BMO Capital Markets analyst Randy Ollenberger noted, “excluding the SPR release, inventories would have drawn” by 220,000 bbl.
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