Tension between Washington and OPEC + oil producers is mounting as the cartel meets today in Vienna to discuss its agreement to control production. For now, all signals from OPEC + indicate that it is unwilling to add more barrels to the global supply despite calls and demands from the White House and other large consumers. But the truth is, the cartel may simply be unable to deliver.
Bloomberg’s Julian Lee broke down the production rate and production capacity of each OPEC + member in a recent analysis room, which revealed that more members of the expanded cartel cannot increase production much from current levels. The reasons are different, from chronic underinvestment in Nigeria and Angola, coupled with the latter’s natural exhaustion, to international relations in the case of Kuwait, which shares some production capacity with Saudi Arabia in the neutral zone between the two countries.
The facts, as they currently stand, appear to be that only a handful of OPEC + members, such as Saudi Arabia, Iraq and the United Arab Emirates, could significantly increase production from current levels. . Others would find it difficult, and it won’t happen fast enough to dampen the rise in gasoline prices that have seriously worried the White House lately. But there is also something else. A handful of producers increasing their production far more than their quotas would violate the terms of the OPEC + deal, Lee notes.
Related: Diamonds? A sexy spin on carbon capture technology So even if OPEC + wanted to help struggling American workers, according to President Biden, by increasing the supply, most of its members would find it difficult to do so, if at all. And those who can help may just not want to, given that the prices are right where most OPEC + members want them and the still solid upside potential is a welcome bonus.
“If you look at gas prices and you look at oil prices, it is a consequence, so far, of the refusal of Russia or the OPEC countries to pump more oil.” Those were Biden’s words in Glasgow, signaling a transition from demands to demands on the White House tone.
OPEC’s only response so far has been comments from officials, who are basically saying the same thing: it’s too early to increase production beyond the current quota, which, by the way, is insufficient for many OPEC + members due to the issues listed by Lee of Bloomberg.
“OPEC + stays the course is broadly integrated, but the market will watch out for surprises,” energy analyst Vandana Harry said this week. There is also talk that if OPEC + does not increase production more substantially, the United States should release oil from its strategic oil reserve as it seeks to curb a 60% increase in retail prices. of gasoline in the past year.
Related: Energy Crisis Adds Billions To Oil Tycoons’ Net Worth
According to an FT report, the White House has another card up its sleeve if OPEC refuses to give in to its demands. Based on Energy Secretary Jennifer Granholm’s reference to OPEC as a cartel earlier this week, the United States may decide to attack the group on legal grounds.
“But the dormant risk – as Granholm’s pointed description of OPEC + suggests as a ‘cartel’ – is antitrust action, like asking Congress for Nopec, a bill that would remove the Sherman’s sovereign exemption.” Antitrust Act. While Nopec hasn’t gone anywhere in Congress so far this year, if the president called him, it would likely pass quickly. Republicans will not die on Nopec Hill, âformer George W. Bush adviser and OPEC expert Bob McNally told FT.
This will hardly make the group more cooperative and even if OPEC goes down, based on Bloomberg Lee’s production capacity calculations, it could still cause problems for heavy oil consumers. He will only have one more reason to do so.
By Irina Slav for Oil Octobers
More reads on Oil Octobers: