The OPEC Cartel and countries allied with it such as Russia, have announced they will raise output by 648,000 barrels per day in July and August.. This will offer modest relief to global economies that have been weighed down by skyrocketing energy costs and the inflation it produces.
Previously the alliance had been adding 432,000 barrels per day, restoring production cuts it implemented during the pandemic as demand cratered. The decision announced Thursday increases the pace of the restoration of output.
This increased rate of restoration is happening just as gasoline prices are at all-time highs in the US, and the Biden administration and incumbents in Congress are beginning to face the prospect of entering mid-term elections this fall in the midst of an economic downturn.
White House press secretary Karine Jean-Pierre said in a prepared statement that the US welcomes the decision, and, “The United States will continue to use all tools at our disposal to address energy prices pressures.”
Although the decision should help economies recover as they emerge from the pandemic, the decision did not appear to allay concerns about high oil prices, as oil prices actually rose after the decision was announced. After having fallen by as much as $3 per barrel earlier in the day, US crude bounced back up after the news, trading up .9% at 116.23. Brent Crude, the international benchmark, rose .7% to $117.02.
Some felt traders were disappointed that Saudi Arabia did not issue assurances that it would make up any shortfalls due to sanctions placed on Russia.
Instead the statement by the cartel merely made reference to the end of seasonal maintenance work on refineries to explain the increase in output, and the necessity to increase supply as “major global economic centers” reopened from the pandemic.
Decisions by the alliance have been complicated by previous failures of its members to meet output quotas due to underinvestment and other problems in certain member countries. As a result actual production often lags behind the scheduled increases.
For months OPEC has resisted pressure from the White House to increase oil production to reduce skyrocketing energy costs. Additionally, sanctions placed on Russia in response to the war in Ukraine have further driven up oil prices. Added to that have been a lack of refining capacity to turn crude into usable vehicle fuel, which has pushed both diesel and gasoline to record highs.
Since the beginning of the year, Crude is up 54%, and both gasoline and diesel are not far behind.
In the US gasoline reached a record high average price of $4.71 per gallon, and prices are expected to go even higher as the summer travel season begins.
