This one was easy to see coming, as President Joe Biden’s request for the OPEC+ countries to pour more of their own oil onto the global market in order to ease crude oil prices made no real economic sense from the beginning. As I pointed out last week, Biden was basically asking these other countries to damage their own economies in an effort to ease inflation in the United States.
Thus it was that yesterday, the OPEC+ participating countries, including Russia, let it be known that they have no intention of responding positively to the Biden request, which was communicated last week via a statement by National Security Advisor Jake Sullivan. As reported by Reuters, “OPEC and its allies, including Russia, believe oil markets do not need more oil than they plan to release in the coming months, despite U.S. pressure to add supplies to check an oil price rise...”.
OPEC+ already has announced plans to add an additional 400,000 barrels of oil per day each month for at least the next year, based on its assessment that global demand for crude will continue to rise over the same period of time. From its founding almost five years ago, the cartel’s goal has been to maintain global crude prices at high enough levels necessary to sustain their own national economic programs. With the exception of the fall-out in crude demand that took place as a result of the COVID pandemic in 2020, the group has been quite effective in achieving that goal.
In order to work, this plan must also avoid creating extreme levels of inflation in the U.S., since that could negatively impact global demand. But the reality is that, while gasoline prices in the U.S. have risen by more than $1 per gallon since Biden was elected, they are not inordinately high when put into historic context, and are certainly not the major culprit causing the near-runaway inflation U.S. consumers are currently experiencing.
The Biden government’s rhetoric notwithstanding, when the U.S. government prints trillions of dollars of new money in a short period of time, you are going to have inflation. OPEC+ did not cause that inflation, and nothing it does will get it under control. Thus, the Biden effort to use OPEC+ as a boogeyman for a problem his administration has helped to create very predictably fell on deaf ears.
The price of crude oil is not rising in any event. Since July 30, the price of a barrel of West Texas Intermediate, the standard U.S. benchmark, has dropped by about 13%. It is likely no coincidence at all that that time frame coincides with the first tranche of an additional 400,000 barrels of OPEC+ oil per day going onto the market on August 1.
According to AAA, the price for gasoline at the pump has not yet started to respond to the lower crude prices, but it will soon. There is always going to be a time lag between those two products, as it takes awhile for gas refined from the lower-priced barrels to displace gas made from higher-priced barrels throughout the supply chain.
Thus, by the end of August, it is likely that action already taken by OPEC+ based on decisions made in July will result in somewhat lower prices at the pump for American consumers. Biden had nothing to do with that decision, but being a politician who desperately needs some good news to distract the public from events in Afghanistan, we can be sure that he will make an effort to take credit for it nonetheless.
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August 17, 2021 at 08:13PM
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OPEC+ Predictably Rejects Biden Plea For More Oil Production - Forbes
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