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OPEC+ Makes Smallest Oil Output Increase in its History

    OPEC+ Makes Smallest Oil Output Increase in its History
    Last updated: 3 months ago
    Image credit: The Wall Street Journal

    Facts

    • The Saudi-led Organization of the Petroleum Exporting Countries (OPEC) augmented by a consortium of partners including Russia known as OPEC+, announced on Wed. that it would increase oil output by 100K barrels a day from Sept. - the smallest increase in its history. [1]
    • According to analysts, OPEC+'s decision is a setback to US Pres. Biden's latest efforts to encourage Crown Prince Mohammed bin Salman, Saudi Arabia's de facto ruler, to pump more oil to help the US and the global economy. [2]
    • According to OPEC+, the minimal increase, equivalent to 86 seconds - or 0.1% - of global oil demand, is a precautionary measure amid severe market volatility, coupled with a lack of excess capacity and insufficient investment in the oil sector. [3]
    • Previously, OPEC+ had increased production by about 430K to 650K barrels per month, with some members of the cartel reportedly exhausting their production potential. [4]
    • While gas prices have gradually retreated from record highs earlier this summer, analysts warn that the ongoing Ukraine war and increasing demand could reverse that trend. [5]
    • Despite promising during his 2020 campaign to make Saudi Arabia a "pariah" over its human rights record and the murder of journalist Jamal Khashoggi, Biden visited the kingdom in July. He then expressed optimism that Saudi Arabia would increase oil production. [6]
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    Spin

    Pro-establishment narrative

    The ambition of the Biden administration is to make oil supply meet oil demand. In fact, the price of barrels of oil has come down. Earlier this summer the price was about $120/barrel and now it's hovering around $95/barrel. We've seen the fastest decline in gas prices in over a decade. The US policy efforts are on the right track.

    Establishment-critical narrative

    This minuscule increase in OPEC+ production is a betrayal of Biden's efforts to bolster US energy security. At an equivalent blip of 86 seconds of total global oil demand, this gesture shows that recent US efforts in the Middle East were fruitless. Saudi Arabia and the oil cartels hold all the cards in the energy poker game.

    Nerd narrative

    There's a 50% chance that the price of oil will be at least $92.1 per barrel by December 2022, according to the Metaculus prediction community.

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