OPEC and Russia Will Ponder Oil Output Under Pressure From Biden.
Big oil producers decided to stick with a scheduled increase, rejecting calls for a bigger jump in production.
OPEC and Russia won’t expand oil output faster, in a rebuff to President Biden.
An oil platform operated by Lukoil in the Baltic Sea in Russia. That country and other oil nations will meet by teleconference on Thursday to discuss oil production.Credit…Vitaly Nevar/Reuters
By Stanley Reed
Nov. 4, 2021Updated 2:59 p.m. ET
Officials from the Organization of the Petroleum Exporting Countries, Russia and other oil-producing nations shook off pressure from the Biden administration and decided on Thursday to stick with their previous plan to raise oil production by a modest 400,000 barrels a day next month.
President Biden and other world leaders have called on countries like Saudi Arabia and the United Arab Emirates to increase production because oil prices, which collapsed during last year’s pandemic lockdowns, have now reached their highest levels in seven years. Gasoline prices, too, have jumped in the United States, Britain and elsewhere.
The jump in prices, Mr. Biden said Tuesday, “is a consequence of, thus far, the refusal of Russia or the OPEC nations to pump more oil.”
But on Thursday, there was no change of heart at the monthly meeting of OPEC Plus, the group of 23 oil-producing nations led by Saudi Arabia and Russia.
The group said it was committed to ensuring “a stable and balanced oil market,” and officials stressed that they have been responsible stewards of the oil market, carefully matching output to rising demand.
And they pointed the finger at other energy markets — including natural and electricity, both of which have seen prices rocket in recent weeks — accusing them of “extreme volatility and instability.”
Prince Abdulaziz bin Salman, the Saudi oil minister who led the meeting, displayed a chart showing that since the beginning of March the prices of natural gas in Europe has roughly quintupled while Brent crude oil, the international benchmark, is only up by around a third.
“Oil is not the problem,” he said.
The prince’s point, said Bhushan Bahree, an executive director at IHS Markit, a research firm, was that “OPEC Plus is managing oil better than other sources of energy are being managed, so don’t be critical of us.”
Mr. Bahree noted that although Saudi Arabia had returned its oil production to pre-pandemic levels, the output of the United States, the world’s largest oil producer, is still well below what it was before the virus hit.
Mr. Biden has raised the possibility of tapping the United States strategic petroleum reserve to modestly increase oil supplies as a means to control prices. Analysts, though, say that such a move would provide only temporary relief.
The strength of the demand for energy was also questioned. Alexander Novak, Russia’s deputy prime minister, said that there were signs of demand weakening in Europe, meaning that the effects of the pandemic are not over.
Oil futures fell toward the end of Thursday’s trading session, with Brent crude down 1.8 percent at about $80.50 a barrel and West Texas Intermediate 2.4 percent lower, at $78.85 a barrel.
An Aramco oil facility in Saudi Arabia. President Biden and other world leaders are pressuring countries like Saudi Arabia to produce more oil.Credit…Amr Nabil/Associated Press
The oil producers, though, have several reasons for not wanting to change their plans. Their current agreement, calling for increases of 400,000 barrels a day each month, was the result of bruising negotiations in July. As the Saudi minister said Thursday, the group does not want to have meetings about “who gets what” on a monthly basis.
The meeting occurred at the same time as the United Nations climate conference in Glasgow, which aims to reduce the greenhouse gas emissions that cause climate change, including by phasing out consumption of oil and natural gas.
From the perspective of the big producers, Mr. Biden and other leaders are asking them to provide more oil so as to smooth the shift to a world where they may be out of business. There is probably “growing frustration” among the oil producers in OPEC Plus “at being asked to supply more barrels by Western leaders who are also calling for a rapid transition to renewables and an end to the age of oil,” Helima Croft, head of commodities research at RBC Capital Markets, an investment bank, wrote in a note to clients.
The Saudi oil minister said that uncertainty about the future market for oil discourages investment in energy supplies.
“Who is going to invest for three years and four years?” he asked.
With climate pressures looming, the OPEC countries may prefer to reap higher revenue, build their financial reserves and raise funds for investments in solar and wind power and other businesses that may eventually replace oil.
OPEC and its allies may also have less room to increase production than is believed. The group is falling short of its overall target, and some members, like Angola and Nigeria, are thought to have already reached their maximum outputs, while others, like Russia, may not be far away. It is not in the interest of countries unable to increase output for the Saudis and others to increase production, bringing down prices and revenue.
In the coming months, demand for oil, still the world’s largest source of energy, appears likely to grow further, as the global economy continues to recover, according to forecasters. Supply, however, may not keep pace, partly because oil companies and investors are wary of investing in what may be a dying business.
The result could be a bumpy transition.
“If you cut off supply faster than demand moves away from fossil fuels, you are going to get high and volatile prices,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm based in London.