OPEC+ Can Resist US Call for More Oil

US President Joe Biden’s calls for OPEC+ to pump more oil may be short-lived as political pressure eases along with gasoline prices over the coming months.

US gasoline prices rose 2.4 % in July from the previous month, taking their 12-month advance to 41.8 %, according to inflation data. The daily national average price at the pump was US$3.19 on Aug. 11.

However, that price is set to decline by almost 12 % to an average of US$2.82 a gallon in the fourth quarter, according to US government forecasts. The continued progress of the Delta coronavirus variant could lead to further demand destruction and an even bigger drop.

Global oil demand is expected to grow slower than previously forecast this year and may lead to surplus supply in 2022 as the spread of the delta variant prompts lockdowns in major consuming countries, the International Energy Agency said Thursday.

Demand surged in June as mobility increased in North America and Europe. But it “abruptly reversed course” in July as the Delta variant undermined deliveries in China, Indonesia and other parts of Asia, the IEA said in a monthly report.

In contrast, OPEC on Thursday stuck to its prediction of a strong recovery in world oil demand in 2021 and further growth next year, saying it expects demand to rise by 5.95 million barrels per day (bpd) this year, or 6.6 %, unchanged from last month’s forecast.

“The global economy continues to recover,” OPEC said in the report. “However, numerous challenges remain that could easily dampen this momentum. In particular, COVID-19-related developments will need close monitoring.”

Brent crude fell 0.4 % to US$71.35 a barrel at 11:51 a.m. in London. It closed near a two-year high at US$76.33 a barrel on July 30.

“Production cuts made during the pandemic should be reversed as the global economy recovers in order to lower prices for consumers,” Biden said Wednesday at the White House.

However, OPEC+ agreed last month to increase supply by 0.4 million barrels per day each month from August through December for a total of 2 million bpd.

“The rise in gas and oil prices will force oil importers to increase pressure on suppliers,” Kirill Tachennikov head of equity and fixed income research at Moscow-based Sinara Financial Group said in a research note published August 12. “OPEC+ spare production capacity of over 5 million barrels per day is enough to keep prices below US$70/bbl in the second half of 2021.”

The administration’s move was likely timed to coincide with the inflation announcement, Height Capital Markets analyst Benjamin Salisbury told Bloomberg News.

“The rising inflation narrative – especially fuel prices – is the number one risk to Biden’s infrastructure, American Jobs Plan and American Families Plan agendas and the Democrats’ re-election prospects,” Salisbury said.