OPEC Plus agrees to increase oil production by paltry 100,000 bpd

OPEC Plus in its meeting today (Wednesday) agreed to raise oil output by 100,000 barrels per day (bpd), a quantity analysts say is an insult to US President Joe Biden. In his recent trip to Saudi Arabia, the producer group's leader, Biden had asked to pump more to help the United States and the global economy.

The increase, equivalent to 86 seconds of daily global oil demand, follows weeks of speculation that Biden's trip to the Middle East and Washington's clearance of missile defence system sales to Riyadh and the United Arab Emirates will bring more oil to the world market.

"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 Raad Alkadiri, Managing Director for energy, climate, and sustainability at Eurasia Group.

The increase of 100,000 bpd will be one of the smallest since OPEC quotas were introduced in 1982, OPEC data shows.

The Organization of the Petroleum Exporting Countries and its allies, led by Russia, a group known as OPEC Plus that was formed in 2017, had been increasing production by about 430,000 to 650,000 bpd a month.

They had struggled to meet full targets as most members have exhausted their output potential following years of under-investment in new capacity. Combined with disruption linked to Russia's invasion of Ukraine in February, the lack of spare supply has driven up energy markets and spurred inflation.

With US inflation around 40-year highs and Biden's approval ratings under threat unless gasoline prices fall, the president travelled to Riyadh last month to mend ties with Saudi Arabia, which collapsed after the murder of journalist Jamal Khashoggi four years ago.

Saudi 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 as part of efforts to rebuild ties with the West.

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

OPEC Plus, which will next meet on September 05, 2022, said in a statement that limited spare capacity requires it to be used with great caution in response to severe supply disruptions. It also said a chronic lack of investment in the oil sector will impact adequate supply to meet growing demand beyond 2023.

Sources within OPEC Plus, speaking on condition of anonymity, also cited a need for cooperation with Russia as part of the wider OPEC Plus group.

Benchmark Brent oil futures jumped by around US$2 per barrel after OPEC's decision to trade close to US$101 per barrel.

Shortly after Russia's invasion of Ukraine, which Moscow terms a "special military operation", oil prices rose to their highest in 14 years.

By September, OPEC+ was meant to have wound down all of the record production cuts it implemented in 2020 in response to the impact of the pandemic.

By June this year, OPEC Plus production was almost 3 million barrels per day 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.

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