Oil watchers skeptical OPEC+ will heed Biden’s call for oil

Grant Smith, Sharon Cho and Devika Krishna Kumar August 02, 2022

(Bloomberg) — Oil-watchers are skeptical that OPEC+ will answer President Joe Biden’s call for more oil supplies when it meets on Wednesday, expecting the coalition to preserve its remaining capacity for another time. 

The alliance led by Saudi Arabia is more likely to keep output steady in September than agree on an increase, according to a Bloomberg survey of traders and analysts. Several delegates from members of the group privately predicted the same.

By the end of this month, the Organization of Petroleum Exporting Countries and its allies will have officially completed the revival of supplies they halted during the pandemic. When visiting Saudi Arabia last month, Biden said he expects the group’s de-facto leader to take “further steps” to boost output. US officials have since signaled confidence that Riyadh will deliver. 

Yet the kingdom has been circumspect about its plans, with Minister of State for Foreign Affairs Adel Al-Jubeir acknowledging only that it would respond in the event of a supply shortage. The 23-nation group will gather online on Wednesday.

Crude prices remain near $100 a barrel, exacerbating the inflationary sting for consumers and jeopardizing the global economy. Yet OPEC+ delegates have said they are concerned by the threat to demand from a potential recession in the US, and the lingering impact of Covid-19 lockdowns in China. Holding output steady at August levels could also avoid a potential rupture with Russia, a critical member of the alliance that faces sanctions on its oil exports over its invasion of Ukraine.

“OPEC is unable or unwilling to swing as much as consuming nations would like,” said Tamas Varga, an analyst at brokers PVM Oil Associates Ltd. in London.

Opinion on the outcome of the OPEC+ meeting was quite evenly divided. Out of 23 survey respondents, 13 predicted group will keep output unchanged, while the remainder predicted increases ranging from 200,000 barrels a day to as much as 1 million a day.

“While President Biden’s visit to Saudi Arabia produced no immediate oil deliverables, we believe that the kingdom will reciprocate by continuing to gradually increase output,” said Helima Croft, chief strategist at RBC Capital Markets LLC. “A failure to add any more barrels to the market would undoubtedly be viewed as a major disappointment in Washington.”

OPEC+ has surprised observers on occasions over the past few years, either by increasing production when a continuation of the status quo was expected, or vice versa. Saudi Energy Minister Prince Abdulaziz bin Salman has said that he enjoys wrong-footing speculators.

The kingdom has already demonstrated some goodwill to consumers by accelerating the revival of idle production July and August. A separate Bloomberg survey showed the group’s Persian Gulf members followed through on that pledge last month.

Analysis from an OPEC+ committee that met on Tuesday showed the group’s outlook has grown a little less bearish, with its estimates for the surplus in global oil markets this year decreased by 200,000 barrels a day to 800,000 a day.

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