Julia Fanzeres and Justin Sink 7/12/2022
(Bloomberg) — The White House believes the Organization of Petroleum Exporting Countries has room to raise oil production, should an upcoming visit by President Joe Biden to the Middle East yield any agreements.
“We do believe there is a capacity for further steps that could be taken,” National Security Advisor Jake Sullivan said in a press conference on Monday. It’s ultimately up to OPEC countries to determine what those additional steps entail, he said.
Biden has intensified efforts to lobby the cartel for more output in an effort to tame high energy prices. He is making his first visit to the Middle East this week, which will include a stop in Saudi Arabia. The kingdom and the UAE are the only OPEC members with significant volumes of unused output. They currently have a buffer of about 3 million barrels a day, official data from the countries indicate.
That’s about 3% of global oil output, and roughly equivalent to the amount of Russian oil that could be kept off the market by sanctions at year-end, according to the International Energy Agency. But the margin of emergency supplies could be narrower than official figures indicate.
French President Emmanuel Macron was caught on camera at the G-7 summit last month, telling Biden that UAE ruler Sheikh Mohammed bin Zayed had admitted to him that Abu Dhabi is already at “maximum” production and the Saudis can only increase “a little more.”
The UAE’s Energy Minister Suhail al Mazrouei promptly sought to clarify that it his ruler been referring to quota limits agreed with fellow OPEC+ members, but uncertainty persists. Shell Plc CEO Ben van Beurden warned on June 29 that the world faces an “ever-tighter market” and a “turbulent period” because OPEC has less spare capacity than assumed.
State-run giant Saudi Aramco says it can reach and sustain maximum production of 12 million barrels a day. OPEC data show the country has only held this level for a single month, April 2020, in its many decades as a major oil producer.
Earlier this month, Saudi Arabia offered up what was widely interpreted as a reconciliatory gesture toward Washington by steering the OPEC+ alliance to speed up its output increases in July and August. Yet in June, Riyadh only delivered about a fifth of the production hike it was due to provide. It pumped 10.45 million barrels a day, or roughly 210,000 below its target, according to data compiled by Bloomberg.
If the Gulf nations were to fully tap their spare capacity, it could backfire. Traders tend to grow anxious when the global market has nothing held in reserve to cover potential disruptions. The recent collapse of production in OPEC member Libya due to renewed unrest has served as a reminder of the perennial risks to global production.
