An increase in crude oil production is too low to affect prices
(Sustainabilityenvironment.com) – Joe Biden’s visit to Saudi Arabia (and the $5.3 billion arms deals with Riyadh and Abu Dhabi) has not helped to unblock the oil market. Yesterday Opec+, the oil-exporting countries’ cartel extended to Russia, decided to increase crude oil production since September, but only by 100,000 barrels per day. An insignificant share of the volumes desired by the President of the United States to lower prices and replace the Russian Ural.
Russian crude oil exports in June reached their lowest volumes since August 2021, at 7.4 million barrels, down 250,000 barrels from the previous month. In January of this year, before the invasion of Ukraine, Moscow’s production stood at 11.3 million barrels. The total shortfall of the OPEC+ countries, between Russian decline and scarce investments for other members, is around 3 million barrels compared to February. The move of the Opec+, therefore, is completely irrelevant for the markets and the operators. This is 0.1% of the current global demand.
But it’s a compromise solution that really doesn’t displease anyone. “This decision is about calming the United States. And not too big to upset Russia”, explained to Reuters a source of the Opec+. The White House commented on the announcement of the additional 100,000 barrels as “a step forward” and clarified that more than increasing the number of barrels, Washington aims to bring prices down. But yesterday evening the WTI (the reference for US crude oil) advanced by 1.7% to 96.1 dollars a barrel, while the Brent (European oil indicator) rose by 1.5% to 102 dollars.
In the final communiqué issued at the end of the monthly meeting, Opec+ points the finger at the low spare capacity. There are no margins to increase production significantly, there are structural limits that cannot be forced. Therefore, the strong limitation on the additional productive capacities “requires to use it with great caution in answer to problems on the supplyings”. And if the spare capacity is low the fault is of the “chronic underinvestment”, an accusation barely veiled to the western countries and to the decrease of investments in the fossils because of the energy transition.