Opec+ approves minuscule oil output rise in rebuff to Biden

Opec+ is set to raise oil output by a minuscule 100,000 barrels per day (bpd). PHOTO: REUTERS

NUR-SULTAN/LONDON (REUTERS) - Opec+ is set to raise oil output by a minuscule 100,000 barrels per day (bpd) in what analysts describe as an insult to US President Joe Biden after his trip to Saudi Arabia last month to persuade the cartel's leader to pump more to help the US and the world economy.

The increase - equivalent to just 86 seconds of global oil demand - came after weeks of speculation that Mr Biden's trip to the Middle East and Washington's clearance of missile defence system sales to Saudi Arabia and the United Arab Emirates (UAE) would bring in more oil.

An Opec+ document showed the group was set to raise output by 100,000 bpd from September. Two sources said it was effectively rubber-stamped during a close-door meeting.

"That is so little as to be meaningless. From a physical standpoint, it is a marginal blip. As a political gesture, it is almost insulting," said Mr Raad Alkadiri, managing director for energy, climate and sustainability at the Eurasia Group.

The stick

Opec and its allies led by Russia have been previously increasing production by about 430,000 to 650,000 bpd a month, although they have struggled to meet full targets as most members have already exhausted their output potential.

The United States has put Opec leaders Saudi Arabia and the UAE under pressure to pump more oil to help rein in prices boosted by rebounding demand and Russia's invasion of Ukraine.

US and Western sanctions on Russia have caused prices of all types of energy to soar, resulting in inflation at multi-decade highs and central bank interest rate hikes.

Mr Biden travelled to Riyadh last month to mend ties with Saudi Arabia, which collapsed after the murder of journalist Jamal Khashoggi four years ago.

US inflation has hit 40-year highs this year, threatening Mr Biden's approval ratings unless petrol prices fall.

Saudi's de-facto ruler, Crown Prince Mohammed bin Salman, whom Western intelligence accused of being behind the Kashoggi murder - which he denies - also travelled to France last month to rebuild ties with the West.

The carrot

On Tuesday (Aug 2), Washington approved US$5.3 billion (S$7.32 billion) worth of defensive missile sales to the UAE and Saudi Arabia, but it has yet to roll back on its offensive weapon sales ban to Riyadh.

The US State Department approved the sale of 300 Patriot missiles and related equipment to Saudi Arabia in a deal valued at as much as US$3.05 billion.

It also announced the potential sale to the UAE of additional Terminal High Altitude Area Defence, or THAAD, missiles, THAAD fire control and communication stations, and related equipment for an estimated cost of US$2.25 billion.

Opec has refused to switch to bigger output increases, as group sources have cited a lack of spare capacity among members to add more barrels, as well as the need for further cooperation with Russia as part of the wider Opec+ group.

Benchmark Brent oil futures jumped by around US$3 per barrel on Opec's decision on Wednesday (Aug 3), trading close to US$102 per barrel.

By September, Opec+ was meant to have wound down all of the record production cuts it implemented in 2020 after the pandemic slashed demand. By June, however,

Opec+ was almost 3 million bpd below its quotas, as sanctions on some members and low investment by others crippled its ability to boost output.

Only Saudi Arabia and the UAE are believed to have some spare capacity left to increase production.

French President Emmanuel Macron has said he has been told that Saudi Arabia and the UAE have very limited ability to increase oil production.

Join ST's Telegram channel and get the latest breaking news delivered to you.