The Organization of the Petroleum Exporting Countries and its allies led by Russia are under growing political pressure from the United States, Japan and other nations to loosen the taps more aggressively and pump more crude to cool red-hot prices. But analysts say the grouping, known as OPEC+, is unlikely to oblige them when it meets Thursday to decide output policy.
In recent months, tight crude supply has collided with strong demand from economies recovering from the coronavirus pandemic.
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In the US, that has translated into higher oil and gasoline prices and home heating costs for consumers, creating a potential political headache for President Joe Biden, who is already under pressure to push his domestic spending agenda – which includes green energy plans – through Congress.
Saudi Arabia, Russia, Kuwait and Iraq have all rejected Biden’s calls and said they want to maintain the current previously agreed plan of incremental increases of 400,000 barrels per day (bpd) on a monthly basis.
“I’m not surprised that OPEC is holding the line on production,” Samantha Gross, director of the Energy Security and Climate Initiative at the Brookings Institution, a Washington, DC-based think-tank, told al Jazeera.
“Producers were hurting during the pandemic fall in demand and I think they want to make up for some of it as demand recovers.”
And the market is expecting OPEC+ not to yield to external pressure, say analysts.
“The market is pricing in optimism that OPEC+ sticks to its plan to keep a cautious approach to releasing supply back on the market,” Louise Dickson, senior analyst at Rystad Energy, a Norway-based research firm, told Al Jazeera.
“Any other outcome would be a shrewd and orchestrated effort to prop prices up.”
Last year, OPEC+ tightened the taps after demand for crude collapsed as COVID-19 lockdowns shut down economies, arrested travel, and halted trade.
And while everything may not be back to normal, demand for oil and gas is pretty much on par with pre-pandemic levels.
The price of global benchmark Brent crude has climbed more than 60 percent in 2021, hitting $86.70 last week. In October, US benchmark West Texas Intermediate (WTI) hit $84.65. Those were the highest levels for both benchmarks since October 2014.
As of 11am Wednesday morning in New York (15:18 GMT), Brent crude futures were down 2.66 percent at $82.47 a barrel while WTI futures tumbled 3.10 percent to $81.31 a barrel.
Demand is above 100 million barrels per day, a level last seen before the COVID-19 crisis, according to British Petroleum (BP) Plc.
The surge in demand as countries cast off business-sapping COVID-19 restrictions combined with still-tight supply has triggered a global energy crisis. Power prices in Europe have skyrocketed and gasoline prices in the US have soared.
Across the US, gasoline prices are up more than $1.20 per gallon compared to last year, with a gallon of gas costing as much as $4.10 on the West Coast as of November 1, according to the US Energy Information Administration.
The fossil fuel crunch comes as world leaders gather in Glasgow, Scotland for the United Nations Climate Change Conference or COP26, to try and move the needle on phasing out oil, coal and other carbon-spewing energy sources that are driving the climate crisis.
Both Biden and his Special Presidential Envoy for Climate John Kerry played down the idea that increased calls for more oil were at odds with the White House’s climate goals.
“On the surface it seems like an irony,” Biden said at a press conference on Sunday. “But … the idea that we’re going to be able to move to renewable energy overnight and not have – from this moment on, not use oil or not use gas … is just not rational.”
Earlier this week, Biden blamed a surge in oil and gas prices on a refusal by OPEC nations to pump more crude. Japan also urged the alliance to act to stabilise energy prices.
But analysts do not expect Thursday’s meeting to result in anything more than a recommitment to the current plan for steady monthly production increases.
“That’s partially due to sustained caution from OPEC+ to not overreact to how an ongoing energy crisis in global natural gas markets is affecting the broader post-COVID recovery of oil demand,” Reed Blakemore, deputy director of the Atlantic Council’s Global Energy Center, told Al Jazeera.
But Biden is not totally at the mercy of OPEC+’s production schedule. His administration could tap into strategic oil reserves to help keep a lid on prices at home – a move that could pressure OPEC+ to boost taps in order to shield its market share.
“The decision to stick to the original output may result in a SPR [or strategic petroleum reserve] release and also cause a doubling down of diplomatic overtures towards Saudi Arabia to unilaterally release additional barrels,” Blakemore said.
A tough winter
The global energy crunch is poised to become even more painful for consumers, especially in the Northern Hemisphere, where staying warm this winter will consume a larger chunk of household finances – especially in low-income homes.
The 23 countries making up the OPEC+ alliance have the capacity to boost output by 5.6 million barrels a day, according to Bloomberg News data.
But it is Russia and Saudi Arabia, the alliance’s two largest producers, that will continue to dominate the return of barrels.
Russia’s oil production will increase by more than 1 million bpd in 2022, with the pre-pandemic level of 11.4 million bpd being breached in mid-2022, according to Rystad.
Saudi Arabia will likely gradually bring back some, but not all, of its 2.1 million bpd in spare production capacity in order to keep a cushion to either flood or tighten the market on short notice.
“Production will rebalance, but it will take time,” Gross of the Brookings Institution told Al Jazeera. “It could be a tough winter for prices if especially cold weather and continuing economic recovery increase demand.”