When news broke last week that President Biden was planning a visit to the Middle East that would include Saudi Arabia, many industry watchers saw signs of a “thaw” in relations between Washington and Riyadh. They also saw the prospect of lower oil prices. It was, after all, to drive down prices that Biden was planning the visit. Unfortunately, things are never that simple. While it’s nice to think that a single visit to Saudi Arabia could convince them to turn on the oil taps and drive prices down, the reality is that prices may not drop again for a long time.
On Friday, the head of energy analysis at Goldman Sachs, Damien Courvalin, Speaking to CNBC, dashed hopes for a quick fix to the global — and U.S. — oil problem. The market is in a structural deficit that has been going on for years, Courvalin said, and while some extra Saudi barrels might prevent another surge in the immediate future, they are not a lasting solution to the problem.
OPEC+’s decision to add more barrels to its monthly production increase is another example of how little power OPEC currently has over oil prices. Originally forecast at just over 400,000 bpd, OPEC+ agreed last week to raise it to nearly 650,000 bpd. The decision drew praise from some observers, but others were quick to note that committing to doing something is not at all the same as actually doing it. The Financial Times, for example, this week cited Rapidan Energy Group said OPEC+ would barely hit the full production increase of 648,000 bpd in July and August. A more realistic figure, according to the consultancy, was 355,000 bpd.
The problems of some OPEC members producing as much oil as planned under the original OPEC+ deal is no secret. In April, such problems led OPEC to produce up to 2.7 million barrels per day less than it was supposed to produce.
Yet this fact about OPEC production does not attract as much attention as President Biden’s visit to Saudi Arabia, which has yet to be officially confirmed and scheduled. For now, there are only plans. And these plans are already criticized.
House Intelligence Committee Chairman Adam Schiff told CBS last weekend that if he were Biden, he wouldn’t go to Saudi Arabia, noting “I wouldn’t go. I wouldn’t hug him. not the hand. This is someone who slaughtered an American resident, cut him to pieces and in the most terrible and premeditated way.”
What this suggests is that the issues that put the US and Saudi Arabia at odds, including Biden’s threat to turn the Kingdom into a pariah state over Khashoggi’s murder, are still alive and well. , and an olive branch of Biden might not sit too well with some voters.
Related: Why nuclear power is more relevant than ever
The question, of course, is whether these voters are more than those who are unhappy with the Biden administration’s energy policies that have driven retail fuel prices to their highest in years — in some parts of the country. at historic highs.
“This trip to Israel and Saudi Arabia – if any – would take place against the backdrop of significant results for the American people in the Middle East region,” said White House press secretary Karine Jean-Pierre last week, adding that “if he [the President] determines that it is in the interests of the United States to engage with a foreign leader and that such engagement can produce results, then it will.”
It’s not particularly specific in terms of plans to lower oil prices, but it does address potential concerns of the kind Schiff voiced in his CBS interview. The problem is that, with a structural deficit on his hands, no amount of reparations with Saudi Arabia would help him.
Global oil supply is tight and likely to remain so due to geopolitical factors, according to Goldman’s Courvalin. He noted EU sanctions against Russia targeting its oil industry, Libya’s continued struggle to keep production uninterrupted, and the fact that the Iranian negotiations, once again, are “leading nowhere”.
What all of this basically means is that no matter what the US President or any other world leader does, oil prices will most likely remain high. In fact, they could still go higher. The latest to issue a warning to economy officials is Trafigura’s Jeremy Weir.
The managing director of the commodity trader said during an FT event this week that “We have a critical situation. I really think we have a problem for the next six months…once it [the oil price] gets to these parabolic states, the markets can move and they can go up a lot.”
OPEC+’s decision to increase production beyond what was initially agreed was seen by some Western analysts as a sign that Saudi Arabia was “about-face”, as Bob McNally put it. from Rapidan Energy Group to the FT.
Interestingly, the Kingdom isn’t saying much about Biden’s hypothetical visit that the White House is planning. The latest from the Saudi side was that of a lawmaker comment that Biden’s visit has been postponed until July so that Washington responds to all Saudi requests first. One can’t help but wonder how far Washington is willing to go to bring down oil prices, even though there’s no guarantee it will succeed.
By Irina Slav for Oilprice.com
More reading on Oilprice.com: