OPEC+ May Not Be Much Help With Prices 06/30 06:26
NEW YORK (AP) -- Oil prices are high, and drivers are paying more at the
pump. But the OPEC oil cartel and allied producing nations may not be much help
as they decide Thursday how much more crude to send to world markets.
That's because the 23-member OPEC+ alliance, which includes Russia, is
struggling to produce enough oil to keep up with the rebounding demand for fuel
since the COVID-19 pandemic. Plus, Western buyers are shunning barrels from
Russia over its war in Ukraine, meaning there's less oil on the market to go
OPEC, led by Saudi Arabia, and its allies will decide whether to boost
production in August beyond the increase of 648,000 barrels per day that the
group agreed to at its last meeting. That boost was a modest step at providing
some relief to soaring prices. Before, OPEC+ had been adding about 432,000
barrels per day monthly to put oil back on the market after cutting production
dramatically during the height of the pandemic.
Gasoline prices around the world have reached painful highs. In the U.S.,
they surpassed $5 a gallon for the first time this month before dipping in
recent days as global oil prices fell on fears of a recession. U.S. President
Joe Biden has been under pressure to do whatever he can to reduce gasoline
prices for struggling Americans, including urging Congress to suspend gas and
diesel taxes, although many experts say there's little he can do.
OPEC, on the other hand, could help lower prices by increasing production --
in theory. But that doesn't mean it will, even as Biden has urged the group to
Production has fallen substantially behind OPEC+ quotas. Angola and Nigeria
have longstanding shortfalls, among others, and questions have arisen about how
much spare production capacity Saudi Arabia and the United Arab Emirates have
There's also little incentive for OPEC+ countries to boost production even
if they are able, said Heather Heldman, managing partner at Luminae Group.
"At the end of the day, they're worried about their economic bottom line,
not the political fortune of a foreign leader," Heldman said.
In addition, Biden is planning his first trip to Saudi Arabia as president,
and both countries will want something positive to announce after that summit
next month, Heldman said.
"From the Saudi perspective and Emirati perspective, there's really no need
to make any meaningful gesture now," she said.
Russia's war in Ukraine has contributed to high oil prices fueling inflation
around the world. At a summit of the Group of Seven leading economies this
week, the U.S. pushed for a price cap on Russian oil imports to try to blunt
the price spikes and reduce money from oil sales flowing into the Kremlin's war
The G-7 agreed to explore imposing the cap by tying it to services needed to
sell oil such as insurance and shipping. Service providers would face sanctions
if they facilitate the sale of oil over the cap. But the proposal left many
important aspects open and will be the subject of talks in the weeks ahead.
The European Union, a key importer of Russian oil, also has approved a ban
on 90% of Russian oil imports by year's end.
As of May, surplus production capacity in non-OPEC countries decreased by
80% compared with 2021, according to the U.S. Energy Information
Administration. Surplus capacity is oil production that can be brought online
within 30 days and sustained for at least 90 days. In 2021, about 60% of the
surplus production capacity was in Russia, but much of that was eliminated as
of May 2022 due to sanctions, the agency said.
High gasoline prices in the U.S. aren't just about rising oil prices and
less oil on the market. Most American refineries are operating at capacity, so
even if there was more oil produced, they wouldn't be able alleviate high
prices by quickly turning it into gasoline, jet fuel and diesel.
U.S. crude traded down 0.2% at $109.70 per barrel ahead of the meeting,
while international benchmark Brent dropped 0.6% to $115.35 per barrel.