Asking OPEC+ to pump more is not always right approach

Asking OPEC+ to pump more is not always right approach

US consumer prices jumped again in July, as spiking gasoline prices continue to fuel inflation, prompting the White House on August 11, 2021 to call for oil producers to open the taps to boost supply. (AFP)
US consumer prices jumped again in July, as spiking gasoline prices continue to fuel inflation, prompting the White House on August 11, 2021 to call for oil producers to open the taps to boost supply. (AFP)
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For a US president to ask OPEC, and now OPEC+, to pump more crude at a time of high gasoline prices at the pump is not something new.

Donald Trump, for example, approached OPEC for first time in April 2018, after 16 months in office, when the price of West Texas Intermediate (WTI) crude was about $70 a barrel and the average retail price of gasoline in the US was about $2.90 a gallon, the highest it was during his presidency. His successor, Joe Biden, has been even quicker to lobby OPEC, after only eight months in office.

Interestingly enough, both presidents approached OPEC when oil prices were around the $70-a-barrel mark and the US retail price for gasoline was around $3 a gallon, a price level that is considered relatively expensive for middle-class Americans.

Trump initially lobbied OPEC with very vicious language but then used a softer tone as prices dropped to $50 a barrel by the end of 2018, around the time of midterm elections in the US, and gasoline prices dropped to about $2.30 a gallon.

The latest White House approach to OPEC+, an alliance of the 13 OPEC nations and 10 other oil-producing countries led by Russia, asking for an increase in oil production of more than 400,000 barrels per day (bpd) comes at a time when the price of gasoline has reached about $3.20 a gallon in the US. This is a dollar more than when Biden took office at the beginning of the year, at which time the price of WTI was $50 a barrel. The retail price of gasoline has been above $3 a gallon since May and steadily increasing, and is now at its highest level in seven years. But why has the White House decided that rising gasoline prices might derail economic recovery and lobbied OPEC+ at a time when it is supporting International Energy Agency calls to avoid investing in oil to help achieve net-zero emissions by 2050?

It is puzzling to see Washington call on OPEC+ to take action to maintain the stability of global energy markets and the global economy. What about shale oil producers; do they not have room to increase production and help alleviate the squeeze in the US domestic market as demand outpaces supply?

Shall we blame OPEC for the higher US gasoline prices? Or is it simply the supply and demand that is part of market forces? Why did the White House approach OPEC at a time when the growth in demand for oil has reached a point of no return amid efforts to boost a global recovery in that demand?

Faisal Faeq

In addition, did the White House consider the effect its request to OPEC+ for increased output might have on shale oil producers if prices plummet?

Why does a US president who opposes the Keystone oil pipeline project with Canada, and supports the cancellation of permits for drilling and fracking on federal land, want producers elsewhere in the world to pump more oil? While the US marches ahead with its own plans to achieve net-zero emissions, it still sees that OPEC must increase production of oil to reduce gasoline prices.

Shall we blame OPEC for the higher US gasoline prices? Or is it simply the supply and demand that is part of market forces? Why did the White House approach OPEC at a time when the growth in demand for oil has reached a point of no return amid efforts to boost a global recovery in that demand?

The White House request to OPEC+, if implemented, might jeopardize the recovery in oil demand at a time when the spread of the Delta variant of the coronavirus is threatening pandemic recovery efforts, and OPEC+ is adopting a cautious approach in adjusting its strategy of cuts to oil output in response to market developments.

On the other hand, OPEC for a very long time has not been targeting a particular price ceiling. Indeed, the price of oil can only be determined by market forces, which are broadly determined by the major consuming nations — and the US is the largest consumer of gasoline — more than 8.5 million bpd. Therefore, the US gasoline market impacts the global gasoline market and not vice versa.

 Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter: @faisalfaeq

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