The Organization of Petroleum Exporting Countries (OPEC) and its crude-producing allies, OPEC-plus, have agreed to maintain their production plan, despite calls from other countries to increase output in order to cool global energy markets.
At the OPEC and non-OPEC ministerial meeting on Nov. 4, conducted via videoconference, OPEC officials reaffirmed their commitment to continuing their program to gradually raise crude production by 400,000 barrels per day each month.
The 13-member cartel is planning to phase out the rest of the production cuts instituted in 2020 in response to the COVID-19 pandemic and collapsing demand.
“The meeting reaffirmed the continued commitment of the Participating Countries in the Declaration of Cooperation (DoC) to ensure a stable and a balanced oil market, the efficient and secure supply to consumers and to provide clarity to the market at times when other parts of the energy complex outside the boundaries of oil markets are experiencing extreme volatility and instability, and to continue to adopt a proactive and transparent approach which has provided stability to oil markets,” OPEC said in a statement.
OPEC previously stated that it didn’t want to lift production levels over fears of a resurgence in CCP (Chinese Communist Party) virus infections. The group is worried that another severe wave could slash international energy demand, despite consumption and prices surging worldwide. The move rejects pleas from the United States and other countries for OPEC to boost production.
The White House has been critical of the move, accusing OPEC and its partners of being “unwilling” to use their power to assist in the global economic recovery.
“Our view is that the global recovery should not be imperiled by a mismatch between supply and demand,” a spokesperson for the White House’s National Security Council said. “OPEC-plus seems unwilling to use the capacity and power it has now at this critical moment of global recovery for countries around the world.”
But some market analysts think that U.S. energy policy is more to blame for skyrocketing prices than OPEC’s decision to keep its output subdued.
“[U.S. President Joe] Biden believes that if he tells OPEC to jump, they should ask how high. His energy policy is, in reality, a hot mess with mixed signals about wanting lower energy prices for U.S. consumers but at the same time he is doing everything he can to raise prices,” Phil Flynn, senior market analyst at The PRICE Futures Group, wrote in his latest edition of “The Energy Report.”
Still, the results of the monthly meeting didn’t surprise financial markets.
“Prices are rising as the market expects a moderate supply increase instead of an acquiescence to calls by the U.S. and other oil producers to bring on more supply sooner,” Louise Dickson, the senior oil markets analyst at Rystad Energy, wrote in a note to clients.
“However, while OPEC+ top producers Saudi Arabia, Russia, Iraq, Kuwait, and UAE all remain unified in sticking to the supply tapering plan of 400,000 [barrels per day], repeated calls from the U.S., Japan, India, and other oil importers add an element of external pressure that could tip the scale.”
Crude futures were in positive territory midday on Nov. 4. December West Texas Intermediate (WTI) futures picked up by $0.13, or 0.16 percent, to $80.99 per barrel on the New York Mercantile Exchange. January Brent futures rose by $0.41, or 0.5 percent, to $82.40 a barrel on London’s ICE Futures exchange.
The next OPEC and non-OPEC ministerial meeting is scheduled for Dec. 2.
How Will the World Respond?
Biden has been urging OPEC to escalate output to help ease high inflation rates worldwide. He reiterated this position on Nov. 7 at the G-20 meeting in Rome, telling reporters that OPEC-plus is essentially to blame for the substantial increase in energy prices across the globe.
“The idea that Russia and Saudi Arabia and other major producers are not going to pump more oil so people can have gasoline to get to and from work, for example, is not right,” he said.
Biden’s remarks came soon after he pushed G-20 energy-producing nations with additional capacity to expand production.
Could the United States begin to tap into its Strategic Petroleum Reserve (SPR), which totals more than 612 million barrels of crude oil? In October, Energy Secretary Jennifer Granholm revealed at a Financial Times energy transition summit that the Biden administration is considering the measure as a means to cool soaring gasoline prices.
“It’s a tool that’s under consideration,” Granholm noted.
Previous U.S. administrations have released crude from the country’s domestic reserves to cut oil prices. Phillip Streible, chief market strategist of Blue Line Futures, told The Epoch Times that the United States would need to tap into its inventories as the economy continues to reopen and the demand for oil and gas rises.
“The U.S. put themselves in a bad situation by not expanding our energy independence. They really took a step back,” Streible said. “After Trump left, they went with this whole green energy initiative. We saw U.S. oil production pretty stagnant at 11.3 million barrels per day. When Trump was in office, we were the largest producer.”
Many market analysts have forecast that crude could touch $100 per barrel again. Should prices increase to this point, would this prompt OPEC to increase production levels?
“OPEC is truly just a business,” Streible said. “The only product many of these countries have is just oil.”
The commodities expert noted that many of these nations went into deep levels of debt, particularly when crude prices slipped into subzero territory.
“It is in your best interest to elevate prices as high as possible,” Streible said. “So, I think $90, $100 is completely possible for crude oil.”
China has been attempting to alleviate prices in the broader commodities market. This past summer, Beijing sold 70,000 tons of aluminum and 50,000 tons of zinc in state auctions. In addition, the National Food and Strategic Reserves Administration announced on Nov. 1 that it had released gasoline and diesel reserves to boost market supply and support price stability. Sinopec Corp, the nation’s largest oil refiner, is planning to maximize domestic refining capacity this month, as well as enhance diesel supplies by 29 percent.
EIA Confirms US Supply Build
According to the Energy Information Administration (EIA), domestic crude stockpiles rose by 3.291 million barrels in the week ending on Oct. 29, higher than the market expectation of 2.225 million barrels. Inventories at the Cushing, Oklahoma, storage facility fell by 916,000 barrels. Gasoline supplies fell by 1.488 million barrels, while distillate stocks jumped by 2.16 million barrels.