OPEC+ decides to slowly increase production of oil

Boost of 100K barrels per day to start in Sept. amid war in Ukraine, high prices

The OPEC oil cartel and its allies decided Wednesday to boost production in September by a much slower pace than in previous months at a time of high gasoline prices and unstable energy supplies exacerbated by Russia’s war in Ukraine.

OPEC, led by Saudi Arabia, and its allies, led by Russia, said they will increase output by 100,000 barrels a day next month after raising it by 648,000 barrels per day in July and August. The group considered what effects staggering inflation and rising COVID-19 rates may have on global demand for fuel in the fall.

It comes after President Joe Biden visited Saudi Arabia last month, aiming to improve relations and encourage more oil production from the cartel to draw down high prices at the pump. While gasoline prices have been falling, they are still high and posing a political problem for him as inflation surges.

No oil production agreement was

announced, but Biden said he expected OPEC to take steps to increase production in the coming weeks. Those hopes didn’t materialize.

As a result, “the U.S. may go looking for other sources of oil, whether it’s Venezuela or Iran,” said Jacques Rousseau, managing director at Clearview Energy Partners.

Biden’s administration also is encouraging the U.S. oil and gas industry to increase production.

“You’ve just seen the second-quarter results from some of these companies. They are record profits,” Amos Hochstein, a senior adviser for energy security at the State Department, said Wednesday on CNBC. “They should be investing those dollars right back into production increases.”

Despite the modest increase announced by OPEC+, the administration was trying to highlight that prices are already falling and could fall further with more domestic production.

“We’re pretty pleased with what we’re seeing” on prices for oil and gas down from highs, but “we know that this is not enough,” Hochstein said.

A senior Biden administration official said the group has restored all the production cuts it made in 2020 during the depths of the pandemic, when oil prices and demand plummeted.

The group has been gradually adding more oil and gas to the market as economies recovered.

Some OPEC nations, such as Angola and Nigeria, have been producing less than the agreed-upon amount. Saudi Arabia and United Arab Emirates, on the other hand, have the capacity to increase production.

OPEC’s decision appears to be an attempt to appease those countries that can’t produce more, Rousseau said.

“Any time you increase the target, there’s countries that can’t participate,” he added. “If you only raise production by 100,000 barrels per day, that’s just a small piece for everybody.”

As a result, the amount of oil on the market might not keep up with demand, so high oil prices may persist for some time.