Why the US is calling on OPEC+ to boost production
Editorial desk || shiningbd
Turn on the taps — and quickly.
That’s the message the administration of United States President Joe Biden sent to the Organization of the Petroleum Exporting Countries (OPEC) and its allies on Wednesday, imploring them to do more to support the global economic recovery and ease the painfully high prices Americans have been experiencing at the petrol pump.
“President Biden has made clear that he wants Americans to have access to affordable and reliable energy, including at the pump,” US National Security Advisor Jake Sullivan said in a statement Wednesday urging OPEC and its allies led by Russia, known as OPEC+, to further unwind production cuts — and fast.
“While OPEC+ recently agreed to production increases, these increases will not fully offset previous production cuts that OPEC+ imposed during the [coronavirus] pandemic until well into 2022,” Sullivan said. “At a critical moment in the global recovery, this is simply not enough.”
Sullivan’s statement was released on the same day that US government data showed petrol prices climbed 2.4 per cent in July from the previous month — the second consecutive month of price increases.
Overall, gasoline prices are up a whopping 41.8 per cent from this time last year, the Consumer Price Index from the US Bureau of Labor Statistics showed, although some of that can be attributed to so-called base effects, given oil demand was gutted when the pandemic struck last year and had only just started creeping back up in the summer of 2020.
OPEC+ controls over 50 per cent of the global supply of crude. That gives it tremendous sway over oil prices, which the cartel can influence by boosting or cutting production.
The US pumps out plenty of crude in its own right, some 20 per cent of total world oil production, making it the largest oil producer in the world, according to the US Energy Information Administration.
But it also consumes a lot of oil — 21 per cent of the world total. Moreover, its production costs are far higher than OPEC’s biggest member, Saudi Arabia.
That leaves the US walking something of a tightrope when it comes to oil prices: too high, and American consumers feel pain at the pumps; too low, and US shale oil producers cannot stay in business because their prices aren’t competitive.
“Although we are not a party to OPEC, the United States will always speak to international partners regarding issues of significance that affect our national economic and security affairs, in public and private,” Sullivan said in his statement Wednesday.
“We are engaging with relevant OPEC+ members on the importance of competitive markets in setting prices. Competitive energy markets will ensure reliable and stable energy supplies, and OPEC+ must do more to support the recovery,” he added.
It’s been a turbulent time for the oil industry. When the pandemic struck in March 2020, prices plummeted as global oil demand fell by roughly a third. A full-on crash ensued after Saudi Arabia initiated a price war with Russia after the two oil producers could not agree on a production-cut target to shore up prices.
The price war strained the 75-year-old relationship between the US and Saudi Arabia. Higher-cost US shale oil producers, many of them laden with debt, faced an existential crisis. In April of 2020, with the world awash in oil, prices of benchmark US crude turned negative as traders paid to have oil taken off of their hands rather than scramble for a place to store it.
After diplomatic finagling by then-US President Donald Trump, OPEC and its allies agreed to scale back production to 9.7 million barrels per day (BPD), a record low.