Stock market updates and economic news for August 3, 2022

Credit…Ahmed Jadallah / Reuters

The oil producer group known as OPEC Plus approved a small increase in production on Wednesday, just over two weeks after President Biden visited Crown Prince Mohammed bin Salman of Saudi Arabia to ask for assurances that the group would take action to cool the oil markets.

The Organization of the Petroleum Exporting Countries and its allies have said they will increase production by 100,000 barrels per day in September, far less than the nearly 650,000 barrels per day the group decided to add in July and August. OPEC Plus has now increased production to more or less prepandemic levels, but global oil supply is still low and high energy prices have helped to skyrocket inflation around the world.

Politically, the paltry increase in production – less than a tenth of 1% of world oil demand, the smallest increase in record – would appear to be an affront to Mr. Biden, who traveled to Saudi Arabia in search of a greater production by major oil producers in the Middle East to lower gasoline prices. Raad Alkadiri, Eurasia Group’s chief executive for energy and climate, said the increase was so small that it was actually meaningless.

“It’s a rounding error at best,” he said, similar to how Saudi Arabia wiped out the White House saying, “That’s it, we gave you 100,000 barrels a day. Now get off your back. ”He said the move would not ease prices, nor was it a sign of any immediate intention to supply more barrels to global markets.

Saudi Arabia’s decision not to further increase production was based on its own political and national security interests, not those of Washington, Alkadiri said. Saudi Arabia’s ability to significantly increase production is limited, she added, and “for the Saudis to play their role as an oil central bank, they need to make sure they have significant volumes they can carry in an emergency.”

US officials said they expect OPEC Plus, which has Russia as its co-chair, to increase production in the coming months. Ed Morse, Citigroup’s global commodity research leader, said Biden had likely gone to meet the crown prince realizing that Saudi Arabia, the de facto leader of OPEC, would not agree to any significant hike. of production.

The White House downplayed the significance of the meager increase, pointing to the largest production increase approved during the summer prior to the visit and noting that gas prices are already falling. Either way, Biden’s aides said, there were significant problems justifying the president’s trip to Saudi Arabia beyond energy.

“It was important to go,” said White House press officer Karine Jean-Pierre, pointing to a ceasefire in the long war in Yemen that has just been extended with Saudi support as an example. “We are saving thousands of lives, so that also counts. So we think the trip was definitely worth it. “

Oil prices rose immediately after the announcement, but subsequently fell by more than 3%. Oil prices have fallen from recent highs but remain high, supported by sanctions on the Russian economy due to the invasion of Ukraine. Brent crude, the international benchmark, was around $ 97 a barrel and West Texas Intermediate, the US benchmark, was around $ 90. A year ago, oil was trading between $ 60 and $ 70 a barrel.

Analysts said concerns about weaker energy demand, as economic growth slowed and central banks raised interest rates to fight inflation, may also have deterred the cartel from significantly increasing production.

Damien Courvalin, head of energy research at Goldman Sachs, said the decision reflects significant uncertainty about the state of the oil market, including the risk of a recession and lower demand from China.

“Is this an environment where you would like to do a lot more?” He said. “From their point of view, it’s a justifiable and cautious approach.” He also cited the risks of falling production from Russia, Libya and Iraq.

The move also reflected limits on the group’s ability to deliver more production, analysts said. Many of its 23 members already lack production targets due to a lack of investment in production capacity. OPEC Plus said in a statement that the availability of spare capacity is “severely limited” due to chronic underinvestment in the oil sector.

It is not yet clear what effect Western sanctions will have on Russian oil production, said Caroline Bain, chief commodity economist at Capital Economics. Production could decline significantly in the next year, not only because Russia struggles to find buyers for its crude oil, but also due to a lack of access to Western technology, spare parts or financing in some cases.

But the increase in production by OPEC and its allies in the coming months, combined with lower demand due to a looming recession in Europe and a slowdown in the United States, would help bring prices down, Ms. Bain said. .

“Not only do we have lower growth on the horizon, but we also have high inflation, which will consume disposable income and give people less money to spend on discretionary goods and travel,” he said. “If you are a family of four, maybe you won’t go for a trip to the beach because it will cost so much.”

Peter Baker contributed reportage.

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