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On 4 November, the Organization of Petroleum Exporting Countries and its affiliates (OPEC+) approved a 400,000-barrel-per-day increase in oil production to take place in December as planned.
The group also denied requests from major consuming countries that it raise its output by as much as double that amount to ensure enough supplies to sustain the global economic recovery as well as to ease consumer prices.
OPEC nations hesitate to boost production because, although markets are tight now, an oil surplus is expected early in 2022, even at today’s production levels, analysts told Bloomberg.
The oil producers acknowledged “extreme volatility and instability” in some energy markets but said those disruptions are “outside the boundaries of oil markets.” It specifically cited the price of natural gas in Europe. (See “Natural Gas Shortage Squeezing Tight Oil Market,” 19 Oct 2021.)
“Oil is not the problem,” Saudi energy minister Prince Abdulaziz bin Salman said in a press briefing following the meeting.
“The problem is the energy complex is going through havoc and hell,” he said.
He displayed a chart comparing the percentage price increase in crude oil this fall with spikes of hundreds of percent in the cost of gas and coal in Europe and elsewhere.
“Look at what Brent is doing compared to the rest,” he said. “The 28 percent [price increase] that happened to oil is nothing.”
Brent crude prices on London’s commodity exchange have risen almost 30 percent since August and closed 8 November above $83. Brent began the year at about $52.
After OPEC+ rebuffed president Joe Biden’s appeal for an 800,00-barrel hike, White House spokeswoman Karine Jean-Pierre said the Biden administration will “use every tool at our disposal to make sure that we address this” impending oil shortage and resulting price increases.
“President Biden has explicitly signaled a response if OPEC+ rejects faster tapering,” Robert McNally, president of consultant Rapidan Energy Group and a former White House official, said to Bloomberg.
Tapping the U.S. Strategic Petroleum Reserve “is the likeliest of options,” he said.
The Strategic Petroleum Reserve holds more than 600 million barrels of oil but is intended for use in national emergencies, such as hurricanes or if oil supplies to the U.S. military run short.
Russian president Vladimir Putin has predicted oil prices will climb to $100 a barrel soon, a view echoed by John Kilduff, founding partner at Again Capital LLC, if the northern hemisphere experiences an early onset of winter.
TREND FORECAST: As we noted in “Renewable Power Sources to Edge Past Coal & Gas by 2026” (23 Feb 2021) and elsewhere, petroleum-producing nations will continue to game the market to ensure they can collect every possible dollar from their dwindling resource as the world gradually shifts to a “green” energy economy.
As a result, oil prices will not fall precipitously from their present levels absent a Black Swan event. However, they also will not soar so high that they spur the world to move faster toward an energy future that no longer depends primarily on fossil fuels.