It would therefore be risky to upset the framework, knowing that production cuts could be necessary again soon. Riyadh came to value its relationship with Russia, which offered a variety of strategic and political advantages but, most importantly, allowed management of the oil market without the ever-present threat of giving up sales to a major rival.
Third, there is the question of refining. Brent crude, the main international marker, at $120 a barrel, is relatively high but not excessively high by historical standards. But after many refineries shut down during the pandemic, capacity is under severe strain. Refiners are making markups of $40 to $50 a barrel on gasoline and diesel, well above typical levels and driving record prices at the pump.
It is only later this year that new capacities in the Middle East, China and Nigeria could improve the situation. Until then, OPEC could reasonably argue that putting more crude on a market that cannot process it is pointless. Indeed, while stocks of crude oil and especially refined products are very tight in the countries of the Organization for Economic Co-operation and Development (OECD), world stocks of crude oil are more comfortable and on the rise.
These factors mean that Saudi Arabia cannot do much more under OPEC+. So far, he has managed to strike a clever balance: pretending to act to please the United States and finally ensuring that Biden will visit and demonstrate the kingdom’s enduring importance, without alienating Russia. It is also useful to ward off the prospect of NOPEC Bill make its way through the US Congress, which would allow for a lawsuit against OPEC for supply coordination.
Saudi state oil company Aramco significantly increased its official selling prices to Asia for July, more than customers had expected, while prices to Europe rose by less. It agreed to lose market share to Russia to major importers China and India. It will retain market share in Asian countries that fear buying more from Russia, including Japan, South Korea, Taiwan and Singapore. And it will sell more to Europe, helping to replace Russian oil.
The United States, for its part, tried to save face; Biden’s visit was shot as part of a wider trip to the Middle East, including Israel and the occupied West Bank and with the Saudi leg intended for a GCC meeting and not specifically oil-focused.
But the timing and thorough background work done by Middle East envoy Brett McGurk and energy focal point Amos Hochstein point to the truth: the Saudi intervention, while limited, remains one of the most acceptable. among a menu of bad options for the United States to bring down politically catastrophic fuel prices.