OPEC+ may not help much with high oil, petrol prices

by Kerry G. Alvarez

NEW YORK — Oil prices are high, and drivers are paying more at the pump. But OPEC’s oil cartel and allied producing countries may not help much if they decide on Thursday how much cruder to send to global markets.

That’s because the 23-member OPEC+ alliance, which includes Russia, is struggling to produce enough oil to keep up with the rising demand for fuel since the COVID-19 pandemic. In addition, Western buyers are avoiding barrels from Russia because of the war in Ukraine, which means there is less oil on the market.

OPEC, led by Saudi Arabia, and its allies will decide in August whether to increase production above the 648,000 barrels per day the group agreed to at its latest meeting. That boost was a modest step to provide some relief from rising prices. Previously, OPEC+ had added about 432,000 barrels per day each month to bring oil back to the market after production was drastically reduced during the pandemic.

OPEC+ may not help much with high oil, petrol prices

Gasoline prices around the world have reached painful highs. In the U.S., they crossed $5 a gallon for the first time this month before falling in recent days as global oil prices plummeted on fears of a recession. U.S. President Joe Biden has been pressured to do everything he can to lower gasoline prices for struggling Americans, including urging Congress to suspend excise taxes on gasoline and diesel. However, many experts say he can do little. To do.

OPEC, on the other hand, could help drive prices down by increasing output — in theory. But that doesn’t mean it will happen, even though Biden has urged the group to do so.

Production has fallen significantly behind OPEC+ quotas. Angola and Nigeria, among others, have long-standing shortages, and questions have been raised about how much spare production capacity Saudi Arabia and the United Arab Emirates have in reserve.

There is also little incentive for OPEC+ countries to ramp up production, even if they can, said Heather Heldman, managing partner at Luminae Group.

“Ultimately, they are concerned about their economic gain, not the political fortune of a foreign leader,” Heldman said.

In addition, Biden is planning his first trip to Saudi Arabia as president, and both countries will want to announce something positive after that summit next month, Heldman said.

“From the Saudi perspective and the Emirati perspective, there’s no need to make a meaningful gesture right now,” she said.

The Russian war in Ukraine has contributed to high oil prices that have fueled inflation worldwide. At a summit of the Group of Seven Leading Economies this week, the U.S. pushed for a price cap on Russian oil imports to dampen price spikes and reduce the money from oil sales going into the Kremlin’s war chest. to decrease.

The G-7 agreed to investigate the imposition of the cap by linking it to services needed to sell oil, such as insurance and shipping. Service providers can be punished if they facilitate the sale of fat above the limit. But the proposal left many important aspects open and will be discussed in the coming weeks.

The European Union, a major importer of Russian oil, has also approved a ban on 90% of Russian oil imports by the end of the year.

According to the U.S. Energy Information Administration, excess production capacity in non-OPEC countries has decreased by 80% since May 2021. Spare capacity is oil production that can be brought online within 30 days and sustained for a minimum of 90 days. In 2021, the agency said about 60% of the excess production capacity was located in Russia, but much of it was eliminated in May 2022 due to sanctions.

High gasoline prices in the U.S. are not just about rising oil prices and less oil in the market. Most U.S. refineries are running at full capacity, so even if more oil were produced, they couldn’t alleviate high prices by quickly turning it into gasoline, jet fuel, and diesel.

U.S. crude fell 0.2% to $109.70 a barrel ahead of the meeting, while the international benchmark Brent fell 0.6% to $115.35.

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