The Biden administration warned on Thursday that OPEC+ is at risk of impairing the world’s economic recovery by failing to put more oil back into the global market, signaling that its efforts to ease high crude prices aren’t over. Hours after Saudi Arabia and its OPEC+ allies approved a 400,000 barrel-a-day output hike for December, the White House reiterated that it will consider “the full range of tools” to protect the economy. Other major consumers also say that the decision is not enough to sustain the post-Covid economic recovery, with the U.S. asking for as much as double that amount. “They have the capacity and the power now to act and make sure this critical moment of global recovery is not impaired,” White House spokeswoman Karine Jean-Pierre said. The U.S. operates in “a competitive free market system” and stressed that OPEC+ “is what impacts global oil prices, which is what has an effect on gas prices at home,” she said.
What happens in the coming weeks will have major implications for a global economy that has been battered by high energy prices, and for the domestic political agenda of a U.S. president whose popularity is sinking as inflation rises. The showdown also puts further strain on America’s increasingly fragile relationship with its strongest Middle Eastern ally — Saudi Arabia. The refusal by the Organization of Petroleum Exporting Countries and its allies to heed the request for more oil risks provoking a bitter fight with some of its largest customers. Yet ministers were emphatic that they made the right decision, saying that oil demand was still being hampered by the coronavirus.
Russia observed a decrease in European fuel consumption in October that “underscores the fact that global oil demand is still under pressure from the delta Covid-19 variant,” Deputy Prime Minister Alexander Novak said in a press conference after the meeting. That means the strategy of “gradual increase is the right one.” OPEC+ ministers repeatedly blamed their customers’ economic woes on the surging cost of natural gas, over which it has no control. “Oil is not the problem,” Saudi Energy Minister Prince Abdulaziz bin Salman told reporters. “The problem is the energy complex is going through havoc and hell.”
Oil prices in London have risen by 25% since August, a substantial increase that nevertheless pales in comparison to the 80% jump in European natural gas futures over the same period. If people are serious about attending to the real cause of the energy crisis they should focus on supplies of natural gas to Europe and Asia, and the related infrastructure, the prince said.
While tapping the strategic reserve might provide short-term price relief for Americans buying gas at the pump, it carries risks. It could set an uncomfortable precedent, as the reserve — currently at more than 612 million barrels — is intended primarily to cushion the blow from economic catastrophes, such as hurricanes or other natural disasters. For the past year, oil consuming countries have become increasingly anxious at crude’s resurgence: first to $50 a barrel, then $75 and now to more than $80. When Russian President Vladimir Putin, one of the leaders of the OPEC+ cartel, warned that $100 a barrel was a distinct possibility, the alarm bells really started ringing.
As quickening inflation pushed some central banks toward earlier-than-expected interest rate hikes, the U.S. India, Japan and other consuming countries put the strongest diplomatic pressure on the cartel in years, but to no avail. “President Biden has explicitly signaled a response if OPEC+ rejects faster tapering,” said Bob McNally, president of consultant Rapidan Energy Group and a former White House official. A release of oil supplies from America’s emergency reserves “is the likeliest of options,” he said.
Jean-Pierre declined to comment on the potential for a release from the U.S. Strategic Petroleum Reserve, but repeated that the administration is “going to use every tool at our disposal to make sure that we address this.”
