OPEC and Russia will decide on oil output under pressure from President Biden
They will meet by teleconference during a prominent United Nations climate summit in Glasgow, where many attendees want to end the burning of fossil fuels, and during an energy crunch that has seen record prices for natural gas and electricity in Europe.
President Biden and other world leaders are pressuring countries like Saudi Arabia and the United Arab Emirates to increase production because oil prices, which collapsed during last year’s pandemic lockdown, have now reached their highest levels in seven years. Gasoline prices, too, have jumped in the United States, Britain and elsewhere.
The rise in prices, Mr. Biden said on Tuesday, “is a consequence of, thus far, the refusal of Russia or the OPEC nations to pump more oil.”
What will come out of the meeting on Thursday is uncertain. But amid the competing demands — expand production now, but also please eventually go out of business — some analysts say the oil ministers will probably decide to stick with their program, hammered out in July, of modest monthly increases of 400,000 barrels a day. Several oil ministers have recently predicted much the same thing.
“External pressure does not seem to have caused OPEC Plus to have changed tack,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm based in London. OPEC Plus is a group of 23 nations led by Saudi Arabia and Russia.
Part of the calculation may come down to how officials in Riyadh and Abu Dhabi weigh their own economic interests with ties to Washington.
In that regard, OPEC Plus may not be in a mood to do what Mr. Biden requests, especially as he and other leaders push for ambitious targets to cut greenhouse gas emissions and expand the production of electric cars.
We “suspect that there is growing frustration” among the oil producers “at being asked to supply more barrels by Western leaders who are also calling for a rapid transition to renewables and an end to the age of oil,” Helima Croft, head of commodities strategy at RBC Capital Markets, said in a note to clients.
With further climate pressures looming, the OPEC countries may prefer to reap high revenue, build their financial reserves and raise funds for investment in solar and wind power and other businesses that may eventually replace oil.
OPEC and its allies may also have less room to increase production than is believed. The group is falling short of its overall target, and some members, like Angola and Nigeria, are thought to have already reached their maximum outputs, while others, like Russia, may not be far away. It is not in the interest of countries unable to increase output for the Saudis and others to increase production, bringing down prices and revenue.
In addition, members of OPEC and its allies don’t view the current oil market as needing fixing. As OPEC officials note, natural gas and electricity markets, which are outside their purview, have been extremely volatile in recent weeks. Oil prices have risen more gradually.
“People need to copy and paste what OPEC Plus has done and what it has achieved,” Prince Abdulaziz bin Salman, the Saudi oil minister, said at an energy conference in Russia last month, according to Reuters.
Whatever OPEC Plus does, it is unlikely to have an immediate effect on the world’s thirst for oil.
In the coming months, demand for oil, still the world’s largest source of energy, appears likely to grow further, as the global economy continues to recover, according to forecasters. Supply, however, may not keep pace, partly because oil companies and investors are wary of investing in what may be a dying business.
The result could be a bumpy transition.
“If you cut off supply faster than demand moves away from fossil fuels, you are going to get high and volatile prices,” Mr. Bronze said.