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Oil: White House ‘received assurances' from private sector on production, energy adviser says

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White House senior energy security adviser Amos Hochstein joins Yahoo Finance Live to discuss key takeaways from President Biden’s trip to Saudi Arabia, rising oil prices, increasing production, and the global energy markets.

Video Transcript

[MUSIC PLAYING]

- Welcome back, everyone. Akiko Fujita sat down earlier today with Special Presidential Coordinator for International Energy Affairs Amos Hochstein, where they discussed Biden's latest trip to Saudi Arabia. Take a listen.

AMOS HOCHSTEIN: So the intention behind the Reserve release of a million barrels a day was because we met with the private sector in the United States, who have said that they will be adding additional investment and CapEx into their drilling operation profiles and platforms and that they will increase production by about 800,000 to a million barrels a day. And that will only come on towards the end of the year. So this was really a stopgap measure.

The United States government cannot be the supplier. We can't be an oil supplier. It's a reserve. And so we have to keep that. So the idea behind it is that we've seen the record profits that oil companies are making, that they will invest in it.

So look, I know that experts are saying oil prices will go up. But I'll remind you something. About a month ago, the same experts said that we were reaching, we were going to reach $180 this summer of oil prices, they said, by the end of July. JPMorgan said we're going to $350.

And we saw a lot of reports saying now that we've reached $5 a gallon, what do they say? They said we're going to $6, $7, $8. Instead we've gone the other direction.

So I would caution a little bit. There's a little bit of hysteria at the moment in the analysis of oil markets. So we're focused on trying to bring the price down. We think we can continue to maintain a lower price

We can't guarantee that. There are all kinds of external factors on that. And we think that the companies should consider additional investments into additional production.

AKIKO FUJITA: Just to confirm, though, I mean, it sounds like you're saying the SPR release was done in conjunction with conversations with the private sector. Have you received assurances from the private sector that they will, in fact, expand drilling come year end?

AMOS HOCHSTEIN: We received assurances from the private sector that they would begin the investment so that by the time the end of the year rolls around, there will be an additional-- their production will increase. So it's not that they will start increasing, start investing at the end of the year. They're investing now is when they need to make those investments to get the drill rigs in place and to be able to increase production.

Yes, we did have those conversations. I myself had those conversations with the leadership of several of the companies. Now, some say they'll increase. Some say they don't care if it's $200 a barrel or $300. They've said it publicly in the press, one of the CEOs. He doesn't care what the price is.

And we think that's wrong. We think that is at a time of a war in Europe, when Americans are paying this kind of a price postpandemic-- and you'll see just in a couple of days, we're going to have the second-quarter earnings results. And look at those results and tell me if the American people think these companies should be reinvesting that money back into the economy, back into increased production. So some of the major companies have told us they will increase. That's part of the reason we did the SPR release the way we did it.

AKIKO FUJITA: Let's talk about your recent trip to Saudi Arabia. Obviously, you accompanied the president. On the back of that trip, you said that you're confident OPEC+ has a few more steps in the coming weeks, sort of alluding to the fact that you got kind of a wink and a nod saying they will expand capacity. Number one, do the Saudis have enough spare capacity to increase supply in a meaningful way? And what's the expectation on your end?

AMOS HOCHSTEIN: So the Saudis are one of the leading voices in OPEC, obviously. But they're not the only player in OPEC. So I want to keep reminding people, when you go-- it's a collection of countries, of producers that really all have to play along and all have to come to an agreement. So it's not just about Saudi Arabia.

I'll be very careful. I'm not referring to Saudis' capacity. Their capacity to produce is their number. They've been talking publicly, the Crown Prince has talked publicly about the fact that they're going to expand their capacity to 13 million over the next several years.

But in the meantime, I think they do have room to grow their production before they reach their max capacity. That's true for other countries in not many, but a couple of other countries in OPEC. And I think that when we were in Saudi Arabia, we met with many of the OPEC countries, but not with OPEC.

So what I was trying to suggest is they need to make a decision through their structures, through OPEC, not in a visit with the United States. We're not a member of OPEC. And we didn't meet with them. So they need to have that conversation ahead of their next meeting on August 3. And we'll see what they do.

I think that what if you look at the joint communique that we released with Saudi Arabia, we agreed on the structure, on the concept that the market needs to have additional oil barrels in order to make sure that global economic growth can continue. That's the levels we want to see. If oil prices come down a lot further, obviously, that will change, whether that means we need more or they should hold back.