(Bloomberg) -- US President Joe Biden returned from Saudi Arabia last month confident that his visit had yielded a promise to cool oil prices. But on Wednesday, OPEC+ offered only a token supply increase and signaled that its powers to help are limited.
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The “further steps” from the Saudis on oil production the White House had predicted after Biden’s reconciliatory fist bump with Crown Prince Mohammad bin Salman turned out to be one of the smallest hikes in OPEC’s six-decade history -- 100,000 barrels a day extra in September from the group and its allies.
Such a small amount, just 1/1000th of global demand, offers little respite for consumers suffering the inflationary squeeze of oil prices and scant reward for the president’s diplomatic efforts.
Explaining their rationale after their meeting, the Organization of Petroleum Exporting Countries and its allies highlighted a fundamental problem that explains why crude remains near $100 a barrel in London.
Idle supplies in the Middle East are down to “razor-thin” levels of about 2 million barrels a day, or 2% of world demand, according to the International Energy Agency. This “severely limited” spare production capacity should only be used with “great caution in response to severe supply disruptions,” OPEC+ said in a statement.
Unwilling or unable to significantly boost production, OPEC+ ended up offering next to nothing.
“Today’s decision will feed the narrative that there is little left in the OPEC+ tank,” said Helima Croft, chief strategist at RBC Capital Markets LLC.
Biden administration officials said they were satisfied with the decision for September because OPEC+ already fast-tracked supply increases in July and August. The Saudis pumped 10.78 million barrels a day last month, according to a Bloomberg survey, a level reached only on rare occasions.
“At the end of the day, we’re not looking at numbers of barrels,” Amos Hochstein, the State Department’s senior adviser for global energy security, said in an interview in Washington. “We’re looking at: Are oil prices coming down from their highs?”
After initially rising on the OPEC+ decision, benchmark prices dropped after US data showed an unseasonable drop in fuel demand. Brent crude was down 3.2% at $97.36 a barrel as of 5:56 p.m. on Wednesday.
“From a global balance perspective, today’s minuscule quota increase -- the smallest since 1986 in absolute terms and smallest ever in percentage terms -- is noise,” said Bob McNally, president of Washington-based consultant Rapidan Energy Group and a former White House official.
Refraining from a significant oil-supply boost may also have served other interests of OPEC+, particularly its desire to preserve ties with Moscow. Before the meeting, delegates privately said they saw no need to compensate for sanctions on Russia, arguing that the country’s exports have remained robust despite measures targeting them.
After the meeting, Russian Deputy Prime Minister Alexander Novak told state Rossiya 24 TV that “uncertainties on the market that need to be taken into account,” such as new Covid strains and restrictions on Russian petroleum sales. “Therefore, such cautious decisions are taken today.”
Critics of the Biden administration were unconvinced that the White House could claim any success from its efforts to boost oil production.
“President Biden went halfway around the world to beg a country he once deemed a ‘pariah’ for more energy,” said Senator Kevin Cramer, a Republican from North Dakota. That was an “insult” because “we can produce more at home if he and his administration got out of the way,” he said.
Biden’s visit to Saudi Arabia was a significant policy reversal. The president had vowed to punish the kingdom for the 2018 killing of columnist Jamal Khashoggi, but with the disruption to energy supplies from Russia’s invasion of Ukraine the importance of the decades-old partnership with Riyadh had re-emerged. Late on Tuesday, the US approved the sale of $3.05 billion of weapons including Patriot missiles to the Middle East heavyweight.
“It’s hard to overstate how disappointing this OPEC+ decision is for the Biden administration,” said Isaac Boltansky, Washington-based director of policy research at brokerage BTIG. “Frankly, it’s the geopolitical equivalent of a slap in the face.”
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