The tension between Washington and OPEC+ oil producers is rising as the cartel meets today in Vienna to discuss its production control deal. For now, all signals from OPEC+ are that it is unwilling to add more barrels to global supply despite pleas and demands from the White House and other large consumers. But the truth is, the cartel may simply be unable to deliver.
Bloomberg's Julian Lee broke down every OPEC+ member's production rate and production capacity in a recent analytical piece, which revealed that more members of the extended cartel cannot boost their production very much from current levels. The reasons for this are different, from chronic underinvestment in Nigeria and Angola, coupled with natural depletion in the latter, to international relations in the case of Kuwait, which shares some production capacity with Saudi Arabia in the neutral zone between the two countries.
The facts, as they stand now, appear to be that only a handful of OPEC+ members, such as Saudi Arabia, Iraq, and the United Arab Emirates, could boost production substantially from current levels. The rest would find it difficult, and it won't happen fast enough to alleviate the gasoline price climb that has had the White House seriously worried lately. But there's something else as well. A handful of producers boosting production much more than their quotas would violate the terms of the OPEC+ agreement, Lee notes.
Related: Diamonds? A Sexy Spin On Carbon Capture Tech So, even if OPEC+ wanted to help struggling working Americans, per President Biden, by boosting supply, most of its members would find it an uphill battle to do so if at all. And those who can help may simply not want to, given that prices are right where most OPEC+ members want them and the still solid upside potential is a welcome bonus.
"If you take a look at gas prices, and you take a look at oil prices - that is a consequence of, thus far, the refusal of Russia or the Opec nations to pump more oil." Those were Biden's words in Glasgow, signaling a transition from requests to demands in the tone of the White House.
OPEC's only response so far has been in comments from officials, who basically say the same thing: it is too early to boost production beyond the current quota, which, by the way, many OPEC+ members are falling short of because of the problems listed by Bloomberg's Lee.
"OPEC+ staying the course is largely baked in, but the market will watch out for surprises," said energy analyst Vandana Harry this week. There is also talk that if OPEC+ does not boost production more substantially, the U.S. would have to release oil from its strategic oil reserve as it seeks to curb a 60-percent rise in retail gasoline prices over the past year.
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According to an FT report, the White House has another card up its sleeve if OPEC refuses to yield to its demands. Based on Energy Secretary Jennifer Granholm's reference to OPEC as a cartel earlier this week, the U.S. may decide to attack the group on legal grounds.
"But the sleeper risk - as indicated by Granholm's pointed description of OPEC+ as a "cartel" - is antitrust action, such as asking Congress for Nopec, a bill that would remove the sovereign exemption from the Sherman Antitrust Act. While Nopec has gone nowhere in Congress so far this year, were the president to call for it, it would likely pass quickly. Republicans won't die on Nopec hill," former George W. Bush adviser and OPEC expert Bob McNally told the FT.
That will hardly make the group any more cooperative and even if OPEC breaks down, based on Bloomberg's Lee's production capacity calculations, it could still make trouble for large oil consumers. It will just have one more reason to do it.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
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