Will Biden Further Push for More Oil From OPEC?

………..An OPEC with little capacity to spare

US President Joe Biden’s approval ratings are said to be plummeting as he prepares for his trip. Reason: soaring petrol prices soaring and inflation hitting a 40-year high.

Biden started a four-day Middle East tour on Wednesday, a trip that takes him to Israel, the occupied West Bank and Saudi Arabia, where he will hold meetings with regional leaders.

It would be Biden’s first trip to Saudi Arabia since he became president last year. He will meet Saudi King Salman, Crown Prince Mohammed bin Salman and other Gulf leaders

He is also billed to attend a GCC summit including Egypt, Iraq and Jordan, known as the GCC+3. Earlier, Mr. Biden stressed that the trip was not about mounting pressure on Saudi Arabia to boost oil production.

The tone appeared to have changed as the trip drew close and frantic behind-the-scenes diplomacy went in an attempt to sway Gulf producers as much as possible to boost crude production and ease supply constraints.

White House national security adviser, Jake Sullivan, said last Monday that President Biden will make the case for increasing oil output as “we do believe there is a capacity for further steps that could be taken”.

Crude price volatility has shackled energy markets since the beginning of Russia’s military offensive in Ukraine, which has also triggered turmoil in global financial markets and commodity prices.

Biden and US allies in Europe have repeatedly urged OPEC+ oil producers to increase output in a bid to rein in high oil prices that are feeding into rising inflation. Co-ordinated releases from the Strategic Petroleum Reserves by the US and its allies around the world earlier this year did little to cool the market.

But OPEC+ has so far not heeded the calls despite rising concerns of a global recession that could dent global demand for oil.

Gulf oil producers have precious little in spare capacity and “they’re going to be judicious on how they deploy any remaining spare barrels”, Helima Croft, chief strategist at RBC Capital told Bloomberg. “I don’t think they want to exhaust all of their spare capacity as part of a strategic reset with the US.”

In a report, The National looks at what OPEC+ is, what has compelled it to ignore western pleas, what the supply and demand dynamics are and where oil prices can go from here.

What is the OPEC+ stance on crude production caps? The alliance remains in place until the end of this year and has successfully navigated markets through one of the most turbulent times for the group. It has stuck to its stated policy to bring additional oil supplies, according to market fundamentals.

Since the beginning of Russia’s military offensive against Ukraine in February, the Opec+ alliance has maintained that volatility in oil markets was not being caused by fundamentals, and that higher oil prices were the result of geopolitical developments. Why the urgency to contain prices? The risk of global recession is mounting amid surging inflation. Food, energy and commodity prices have risen significantly and businesses around the world are facing a sharp increase in raw material prices, as transport costs increase.

Higher oil prices are feeding into consumer prices, further depleting the already dwindling purchasing power of consumers.

With US petrol prices rising at the pump, inflation at a 40-year high and subsequent interest rate increases making borrowing more expensive, Mr. Biden’s approval ratings have declined sharply at home as he prepares for his Middle East visit.

He has already urged US refineries to increase production and reduce petrol prices, and has also asked politicians to approve a proposed “gas tax holiday” to ease the cost-of-living pressure on Americans.

“We will convey our general view [during the trip] … that we believe that there needs to be adequate supply in the global market to protect the global economy and to protect the American consumer at the pump,” Mr. Sullivan said.

However, markets in the meantime, remain “torn between recession fears in the US, Europe and China torpedoing growth and thus, oil consumption, and the still very tight supply/demand reality of the physical market”, Jeffrey Halley, senior market analyst, Asia Pacific at Oanda, said.

“Little hope is being assigned to Biden’s visit to Saudi Arabia unlocking more production.”