OPEC and its allies have disregarded calls from US President Joe Biden to do more to tame soaring energy prices that are fueling inflation and hurting vulnerable households.
Energy ministers from major oil and gas producers, including Saudi Arabia and Russia, decided during a virtual meeting on Thursday to stick to their plan to gradually increase production. The coalition said in a statement that it will increase output by only 400,000 barrels per day in December.
Even as the world debates the end of fossil fuels at COP26 in Glasgow, OPEC and its partners were facing calls from major energy consumers including the United States, Japan, and India to open the taps wider to help bring down prices.
Speaking at the climate summit on Tuesday, Biden said that rising gasoline prices are “a consequence” of “the refusal of Russia or the OPEC nations to pump more oil.”
“Our view is that the global recovery should not be imperiled by a mismatch between supply and demand. OPEC+ seems unwilling to use the capacity and power it has now at this critical moment of global recovery for countries around the world,” a spokesperson for the National Security Council said in a statement. “Now is the time for major country producers to stabilize energy prices and ensure high prices do not hamstring the current global economic recovery.”
The price of Brent crude oil, the global benchmark, has doubled over the past year to $83 per barrel as the global economy rebounds from its pandemic slump. Bank of America predicts that prices will zoom even higher and hit $120 per barrel by June 2022.
OPEC members produce about 40% of the world’s crude oil. OPEC has been coordinating production decisions in recent years with other major suppliers, including Russia, as part of a larger grouping called OPEC+. It has been adding back supplies that were slashed during the pandemic when demand collapsed, but in a very gradual way in a bid to meet rising consumption without triggering sharp price falls.
“With regard to the US, yes we have been having discussions at all levels and we still believe we are doing the right job and the most convenient job,” Saudi energy minister Prince Abdulaziz bin Salman said on Thursday.
But consumers may not see any relief for some time.
“Prices of over $80 per barrel are, of course, [one] reason why OPEC+ will not be in any hurry to add supply to the market, particularly given that US producers have shown little inclination to raise output,” Caroline Bain, chief commodities economist at Capital Economics, said following the decision on Thursday.
Soaring oil prices are dampening the economic recovery at a crucial moment, and elevated gasoline prices could have political ramifications for Democrats heading into next year’s midterm elections. US gas prices have surged to a seven-year high of $3.40 a gallon nationally and are flirting with $4 in Nevada, Washington, and Oregon. Gasoline and diesel prices have hit record highs in part of Europe and the United Kingdom too.
Natural gas prices are also soaring, piling on pain for low-income households around the world as they turn on their heating at the start of the northern hemisphere winter.
“The external flex on OPEC+ from oil-producing countries is mounting, especially from the United States, and has led to speculation that if the alliance itself doesn’t add supply to the market, the United States, possibly in coordination with other states, will be forced to quell the oil price rally by releasing crude from strategic reserves,” said Rystad Energy analyst Louise Dickson.
Last month, Energy Secretary Jennifer Granholm suggested that tapping the US Strategic Petroleum Reserve was under active consideration — before the Energy Department later walked back her comments by clarifying there was no “immediate plan” to do so.
Biden’s call for OPEC+ countries to increase production coincides with US attempts at COP26 to accelerate the shift away from fossil fuels in order to prevent a climate catastrophe. The International Energy Agency has said that fresh oil and gas development must stop if the world is going to limit warming to 1.5 degrees Celsius and avoid the worst effects of the climate crisis.
In an announcement at COP26, seven countries and 21 other parties, including banks and cities, pledged to end the use of coal. Ukraine, Chile, Singapore, Mauritius, Azerbaijan, Slovenia, and Estonia joined the Powering Past Coal Alliance, which obliges members to stop building new coal projects and phase out coal by 2030 for developed nations, and 2040 for developing countries.
And 20 countries, including the United States, Canada, and the United Kingdom, have agreed to end financing for fossil fuel projects abroad. Several countries had already agreed to end international financing for coal, but this agreement is the first of its kind to include oil and gas projects as well.
“On the surface, it seems like an irony, but the truth of the matter is … the idea we’re going to be able to move to renewable energy overnight and … from this moment on, not use oil or not use gas or not use hydrogen is just not rational,” Biden told reporters on Sunday.