OPEC, Biden and gas prices

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As cognitive dissonance goes, this is a classic. President Biden’s clear political goal is to reduce US oil and gas production, and reduce the global supply of fossil fuels in the name of combating climate change. However, his administration is now appealing to the OPEC oil cartel to pump more oil so that gasoline prices in the United States do not rise more than they already did under the Biden era.

Oil prices surged to a six-year high on Tuesday after the Organization of the Petroleum Exporting Countries (OPEC) and Russia failed to agree to raise production quotas. Last spring, OPEC cut production quotas after crude oil prices fell to $20 a barrel amid economic shutdowns and a price war between Saudi Arabia and Russia.

But energy demand has fallen again in many parts of the world as Covid-19 vaccines are introduced, governments ease lockdowns, and freight shipments increase. US oil consumption is now roughly what it was at this time in 2019. OPEC estimates that oil demand in industrialized nations will increase by 2.7 million barrels per day this year.

In early June, OPEC modestly raised production quotas, but demand is still rebounding faster than supply. The upshot is that crude oil prices have averaged around $74 a barrel, up 45% or so this year. OPEC countries naturally want to take advantage of the pandemic recovery to boost production and generate more petrodollars to fund their governments.

But a row between Saudi Arabia and the United Arab Emirates over quotas is hampering a deal, pushing US gasoline prices to a seven-year high. Enter the Biden administration. On Monday, a White House spokesman said he was urging OPEC and its allies to quickly reach a compromise that would “allow the proposed production increase going forward.”

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