The Biden Administration continues to speak with OPEC about the importance of mitigating high oil prices to better support the economy, White House Press Secretary Jen Psaki said on Tuesday as Brent Crude prices hit $80 per barrel for the first time in three years.
And the Biden Administration’s outreach regarding oil prices doesn’t stop with OPEC, Psaki said.
“We continue to speak to international partners, including OPEC, on the importance of competitive markets and setting prices and doing more to support the recovery,” Psaki told reporters during a press briefing when asked whether there are any conversations or plans for such with OPEC.
High gasoline prices continue to worry the administration. Last month, the White House called on the OPEC+ group to increase oil production more than they had planned to tame rising gasoline prices that could derail the global economic recovery.
At that time, oil prices had just crossed the $70 a barrel mark.
“Higher gasoline costs, if left unchecked, risk harming the ongoing global recovery,” National Security Advisor Jake Sullivan said in early August, adding that the OPEC+ timeline for easing the cuts “is simply not enough” at a critical moment in the global recovery.
Sullivan is now in Saudi Arabia, with plans to meet Crown Prince Mohammed bin Salman to discuss Yemen.
“That’s really the focus,” Psaki said, referring to Yemen.
“But I would assure you we’re not only engaged with OPEC, we’re looking at every means we have to lower gas prices,” she added.
The press briefing at the White House took place on the day on which oil prices briefly hit $80 a barrel for the first time in three years as the natural gas shortage, and price spikes spilled over into the crude oil futures market.
Early on Tuesday, oil prices were falling by nearly 2 percent on concerns about demand destruction and China’s economy with power outages at factories, and the American Petroleum Institute (API) reporting on Tuesday a surprise build in crude oil inventories of 4.127 million barrels for the week to September 24.
OPEC+ meets on October 4 for the regular monthly decision on how to proceed with the easing of the cuts. Currently, plans are to increase supply by 400,000 bpd every month until all 5-million-bpd of the cuts are unwound.
By Tsvetana Paraskova for Oilprice.com
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However, the truth of the matter is that the Biden administration’s call on OPEC+ to increase production to help reduce crude oil prices is diametrically opposed to the interests of the members of the organization. They overwhelmingly depend on the oil revenues to the tune of 85%-90%.
The Biden administration request has far less to do about the impact of high oil prices on the global economy and far more to do with a second term for President Biden.
For OPEC+, a Brent crude price of $80 a barrel is the price the overwhelming majority of its members with the exception of Russia need as to balance their budgets.
Therefore, there is no reason for OPEC+ to alter its agreed plans to ease its production cuts by 400,000 barrels a day (b/d) in November.
OPEC+’s role is to balance the market to ensure that it doesn’t dip into a deficit or a glut. And despite being the most influential player in the global oil market, OPEC+’s ability to prevent a deficit in the market is being undermined by declining investments in oil and gas production. Furthermore, huge deep production cuts by OPEC+ like the ones implemented in 2020 are no more acceptable to its members.
And contrary to claims otherwise, a fair price for Brent crude is $110-$110 a barrel. Such a price is good for the global economy since it stimulates the growth of the three chunks that make the economy, namely global oil investments, the economies of the oil-producing countries and the global industry.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London