Prof. ST Hsieh
Director, US-China Energy Industry Forum
October 5, 2022
First, let us not equate the US with President Biden. Second, Biden has done many unforced errors against Saudi. Third, the US and Russia are fighting a proxy war in Ukraine. The US led sanctions against Russia, or Putin personally, are focused on collapsing Russia. So, there is no surprise that OPEC+ takes actions to protect their national revenue by reducing production.
The size of the production reduction at 2 million bbl per day is significant, or a surprise to Biden administration. If Biden is serious, he has some options to offset such impacts. For example, he could order the release of US SPR. The last time, Biden had ordered releasing one million bbl per day for ten months. He also should take the recommendation of the America Petroleum Institute: relax his green agenda and increase US domestic oil production. That will have an immediate impact on US domestic gas prices.
The major challenge that Biden and his team faces now is that: you can’t have your cake and eat it too.
Any President has a full plate, Biden is no exception. The “Buck Stops Here,” Biden needs to make tough decisions and take actions. Unfortunately, Biden talks too much, the public keep losing confidence in his administration.
There is no reason for foreign powers making any policy decision based on the US mid-term election. With respect to Biden, he should ask himself what he has done for the world. Look around the world now, Russia is not defeated yet, Europe is cornered by a debilitating energy crisis that will cause broad based instabilities this winter. Biden is also challenging China with sanctions and trade blocks without a clear China policy.
No wonder his approval rating in the US is in the lower 40%. The US mid-term election is about 30 days away, Biden’s party most likely will lose. It is amazing that Biden’s White House just announced Biden will run for re-election in 2024: he would be 82 years old then. Is it a joke?
OPEC+ angers US with major oil output cut
Tue, October 4, 2022 at 8:51 PM
Saudi Arabia, Russia and other top oil producers agreed on a major cut in production on Wednesday to boost crude prices — a move denounced by the United States as a concession to Moscow that will further hurt the global economy.
The 13-nation OPEC cartel headed by Riyadh and its 10 allies led by Moscow agreed to reduce output by two million barrels per day from November at a meeting in Vienna, the group said in a statement.
It is the biggest cut since the height of the Covid pandemic in 2020, raising fears that it will turbocharge oil prices at a time when countries are already facing soaring energy-fuelled inflation.
Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, defended the move, saying the cartel’s priority was “to maintain a sustainable oil market”, at a press conference following OPEC+’s first in-person meeting since March 2020.
But the decision drew a swift rebuke from US President Joe Biden, who had made a controversial trip to Saudi Arabia in July under pressure as Americans faced rising prices at fuel stations.
The timing is also bad for Biden’s political agenda as it comes ahead of US midterm elections next month.
“It’s clear that OPEC+ is aligning with Russia with today’s announcement,” White House Press Secretary Karine Jean-Pierre said aboard Air Force One.
National Security Advisor Jake Sullivan and top economic advisor Brian Deese said in a statement that Biden was “disappointed by the shortsighted decision by OPEC+”.
Western allies led by the United States have tried to isolate Russia’s economy, which relies heavily on energy exports, in retaliation for the invasion of Ukraine.
– Oil prices rise –
OPEC+ decided to slash its output as oil prices fell below $90 per barrel in recent months over concerns about the global economy, after soaring to $140 in the wake of Russia’s invasion of Ukraine earlier this year.
The international benchmark, Brent North Sea crude, was up at $93.43 following Wednesday’s announcement.
The oil production cut could give sanctions-hit Russia a boost ahead of a European Union ban on most of its crude exports later this year and as the Group of Seven wealthy democracies mull a cap on the country’s oil prices.
Russian deputy prime minister Alexander Novak, who is under US sanctions and attended the OPEC+ meeting, said a price cap would have a “detrimental effect” on the global oil sector.
He warned that Russian companies would “not supply oil to those countries” that introduce such a cap.
“There is a reason why Russia is ready to participate with an OPEC cut — because they are not sure whether they will find somebody to buy this oil,” Patrick Pouyanne, chairman of French oil giant TotalEnergies, said at a London oil industry conference.
Consumer countries had pushed for months for OPEC+ to open taps more widely to bring down prices, but the group ignored them again.
While the cut was not welcomed by the United States, several OPEC+ nations have struggled to meet their quotas in the first place.
OPEC Production Cuts Could Have Major Political Fallout
The midterm elections may hinge on how expensive gas prices become over the next four weeks.
President Biden has had to deal with a lot in the first two years of his presidency.
Between the pandemic, inflation, and a war in Eastern Europe that has no signs of abating anytime soon, the President has had a lot on his plate.
Arguably the biggest part of the meal he needs to get his hands on is gas prices, however, and this week he found out that the oil cartel OPEC+ won’t be lending him a helping hand anytime soon.
Oil Prices in the States
While Russia is not one of the 15 members of OPEC, the country’s war with Ukraine has had a direct effect of oil and gas production on the global scale.
At home, Floridians are still reeling from the devastating effects of Hurricane Ian, which knocked out power for 2 million residents in the state.
Refinery disruptions, including fires and routine maintenance, occurred during a short period of time, pushing wholesale gas prices higher and are “contributing to wild fluctuations as areas of the West Coast, Pacific Northwest, Great Lakes, and Plains have seen significant refinery issues leading to supply challenges, causing prices to spike even as oil prices have dropped,” said Patrick De Haan, head of petroleum analysis for GasBuddy.
Weekly gas prices rose seven cents last week to $3.79 per gallon, driven by tight supply and increased demand as more drivers fuel up, according to AAA.
To fight rising gas prices in California, which leads the states by far with an average of $6.37 per gallon, announced that it will allow the sale of less expensive winter blend gasoline a month ahead of schedule, but Wednesday’s OPEC news could make those mitigation efforts hollow.
Political Fallout for Biden
While gas prices are down from the record high they reached earlier this year, they are still much higher than they were last year.
The biggest fallout may not be at the gas pump however, it may be at the ballot box.
It’s even tougher when the current President, technically the head of the Democratic part, is struggling with his approval ratings.
Joe Biden’s approval recovered over the summer thanks in part to stabilizing oil prices, but a new Reuters/Ipsos poll shows that his approval rating edged down to 40% a little more than four weeks out from the Nov. 8 election day .