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After U.S. president Joe Biden announced he would release 50 million barrels from the country’s strategic oil reserve to cut gasoline prices, the Organization of Petroleum Exporting Countries and its affiliates (OPEC+) said the move would prompt it to consider abandoning its plan to boost production by 400,000 barrels a day.
Last week, after a White House delegation visited Saudi Arabia, the Saudi oil ministry announced it would abide by its plan to pump the 400,000 additional daily barrels.
Biden announced the reserve’s release, the largest ever, after OPEC+ had rejected his earlier plea to raise production to moderate fuel prices as the world economy continued its struggle to find firmer footing (“OPEC+ Rejects World’s Plea for More Oil,” 9 Nov 2021).
The agreement surprised traders, according to the Financial Times.
Markets had expected the oil cartel to cut production to salvage prices, which have nosedived 20 percent in the last three weeks.
Immediately after the agreement, oil prices fell but later recovered, with benchmark Brent crude closing above $69 a barrel after sinking below $66 on 1 December.
Brent closed above $70 a barrel on 6 December.
Saudi officials said their decision to boost production was not political but strictly related to their analysis of the global oil market.
Nevertheless, “This is a big win for the White House,” Helima Croft, global commodities chief at RBC Capital, told the FT.
TREND FORECAST: As we noted in “Renewable Power Sources to Edge Past Coal & Gas by 2026” (23 Feb 2021) and elsewhere, petroleum-producing nations continue to game the market to ensure they will collect every possible dollar from their will dwindling resource as the world gradually shifts to a “green” energy economy… which is still a long haul.
As a result, oil prices will not fall precipitously from their present levels absent a Black Swan event, such as war in the Middle East. Moreover, there has been a sharp underinvestment in oil and gas internationally over the past several years, with spending down an estimated 50 percent below historical norms.
“For the first time in a long time, you’re seeing a buyer looking for a barrel of oil, as opposed to a barrel of oil looking for a buyer,” said Jeff Miller, CEO of Haliburton at the World Petroleum Congress in Houston, according to The Wall Street Journal.