The US accuses Opec+ of putting the world’s economic recovery at risk by failing to pump more oil into the global market. Picture: 123RF/lnpdm
The US accuses Opec+ of putting the world’s economic recovery at risk by failing to pump more oil into the global market. Picture: 123RF/lnpdm

The US warned this week that Opec+ is at risk of impairing the world’s economic recovery by failing to put more oil into the global market, signalling that its efforts to ease high crude prices aren’t over.

Hours after Saudi Arabia and its allies in Opec+ — the 14 members of the Organisation of Petroleum Exporting Countries plus 10 non-members, including Russia — approved a 400,000 barrel-a-day output hike for December, the White House reiterated that it will consider “the full range of tools” to protect the economy.

Other major consumers also say the Opec+ decision, at a meeting of the cartel this week, is not enough to sustain the post-Covid economic recovery, with the US asking for as much as double that amount. 

“They have the capacity and the power now to act and make sure this critical moment of global recovery is not impaired,” White House spokesperson Karine Jean-Pierre said.

The US operates in “a competitive free market system”, she said, and Opec+ “is what impacts global oil prices, which is what has an effect on gas [petrol] prices at home”.

What happens in the coming weeks will have major implications for a global economy that has been battered by high energy prices, and for the domestic political agenda of a US president whose popularity is sinking as inflation rises.

The showdown also puts further strain on Washington’s increasingly fragile relationship with its strongest Middle Eastern ally — Saudi Arabia. 

The refusal by Opec+ to heed the request for more oil risks provoking a bitter fight with some of its largest customers. Yet ministers were emphatic that they made the right decision, saying that oil demand was still being hampered by the coronavirus.

Russian deputy prime minister Alexander Novak told a media conference European fuel consumption dropped in October, which “underscores the fact that global oil demand is still under pressure from the Delta Covid-19 variant”.  That meant the strategy of “gradual increase is the right one.”

Opec+ ministers repeatedly blamed their customers’ economic woes on the surging cost of natural gas, over which it has no control.

“Oil is not the problem,” Saudi energy minister Prince Abdulaziz bin Salman told reporters. “The problem is the energy complex is going through havoc and hell.”

The problem is the energy complex is going through havoc and hell
Saudi energy minister Prince Abdulaziz bin Salman

Oil prices in London have risen 25% since August, a substantial increase that nevertheless pales in comparison with the 80% jump in European natural gas futures over the same period. If people are serious about attending to the real cause of the energy crisis they should focus on supplies of natural gas to Europe and Asia, and the related infrastructure, the prince said.

While tapping the strategic reserve might provide short-term petrol price relief for US consumers, it carries risks. It could set an uncomfortable precedent, as the reserve — currently at more than 612-million barrels — is intended primarily to cushion the blow from economic catastrophes, such as hurricanes or other natural disasters.

For the past year, oil-consuming countries have become increasingly anxious at crude’s resurgence: first to $50 a barrel, then $75 and now to more than $80.

When Russian President Vladimir Putin warned that $100 a barrel was a distinct possibility, the alarm bells really started ringing. 

As quickening inflation pushed some central banks towards earlier-than-expected interest rate hikes, the US, India, Japan and other consuming countries put the strongest diplomatic pressure on the oil cartel in years, but to no avail. 

“President Biden has explicitly signalled a response if Opec+ rejects faster tapering,” said Bob McNally, president of consultant Rapidan Energy Group and a former White House official. A release of oil supplies from US emergency reserves “is the likeliest of options”, he said.

Jean-Pierre declined to comment on the potential for a release from the US strategic petroleum reserve, but repeated that the administration is “going to use every tool at our disposal to make sure that we address this”.

Bloomberg. More stories like this are available on bloomberg.com

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