Quantifying OPEC Plus spare production capacity a difficult task

Reportedly, OPEC leaders Saudi Arabia and the United Arab Emirates stand ready to deliver a significant increase in oil output should the world face a severe supply crisis this winter.

When the Organization of the Petroleum Exporting Countries and its allies (OPEC Plus) decided on Wednesday to raise oil output by a mere 100,000 barrels per day (bpd), it broke a taboo with a rare reference to the group's spare production capacity.

The statement referred to the severely limited availability of spare capacity, saying that meant it needed to keep it in reserve for severe supply disruptions.

At first glance, that reads as an acknowledgement that OPEC’s leader Saudi Arabia has almost no room to raise output, as mentioned by French President Emmanuel Macron in a conversation with US President Joe Biden last month.

Three sources, speaking on condition of anonymity because of the sensitivity of the issue, said Saudi Arabia and the UAE could pump significantly more, but would only do so if the supply crisis worsened.

"With possibly no gas in Europe this winter, with a potential price cap on Russian oil sales in the New Year, we can’t be throwing every barrel on the market at the moment, one of the sources said.

The sources did not quantify any increase, but said Saudi Arabia, the UAE and some other OPEC members possessed around 2.0 million to 2.7 million barrels per day of spare production capacity.

"The only time we can prove we have more spare capacity is when it comes to a long-lasting crisis," the source said, adding that would be when OPEC members would raise output.

That could be as soon as this winter, the sources said, as the political and economic standoff between Russia, a member of OPEC+, and the West over Moscow's invasion of Ukraine show no sign of easing.

The invasion, begun on February 24, which Moscow terms a "special military operation" sent European gas prices to records and lifted international Brent crude to 14-year highs.

"With spare capacity below 2 million bpd in August, we believe OPEC Plus preferred to keep their powder dry and use their buffer to address potential future disruptions," PVM's Tamas Varga said in a note.

"There are growing fears of demand destruction and if the current trend continues, additional barrels would put unwanted downside pressure on prices and, at the same time, would unnecessarily deplete thinning spare capacity."

After Biden visited Saudi Arabia in July to press for extra oil to cool international markets, analysts had speculated OPEC Plus would increase supply.

The Saudi trip was scheduled only after OPEC Plus announced in early June that it would increase output in July and August. Wednesday’s meeting discussed output for September.

Most OPEC Plus members have struggled to meet production targets having already exhausted their output potential following years of under-investment in new capacity.

In that context, Wednesday's decision to increase production targets by 100,000 bpd, one of the smallest increases since OPEC quotas were introduced in 1982, was a goodwill gesture, one of the sources said.

"It is small, yes, but it shows that OPEC Plus, given the fact that it includes so many countries, like Russia, Iran, Venezuela with all their grievances, managed to garner consensus and move forward," the source said.

Following Wednesday's decision, the White House said President Biden would remain focused on keeping fuel prices down.

 

US will not abandon Taiwan, says Pelosi

US House Speaker Nancy Pelosi left Taiwan on Wednesday after a visit that heightened tensions with China. Pelosi said, she and other members of Congress in her delegation showed they will not abandon their commitment to the self-governing island.

Pelosi, the first US speaker to visit the island in more than 25 years, courted Beijing’s wrath with the visit and set off more than a week of debate over whether it was a good idea after news of it leaked. In Taipei she remained calm but defiant.

“Today the world faces a choice between democracy and autocracy,” she said in a short speech during a meeting with Taiwanese President Tsai Ing-wen. “America’s determination to preserve democracy, here in Taiwan and around the world remains ironclad.”

Pelosi arrived at a military base in South Korea on Wednesday evening ahead of meetings with political leaders in Seoul, after which she will visit Japan.

Both countries are US alliance partners, together hosting about 80,000 American personnel as a bulwark against North Korea’s nuclear ambitions and China’s increased assertiveness in the South China and East China seas.

 “Such an act equals to sealing off Taiwan by air and sea, such an act covers our country’s territory and territorial waters, and severely violates our country’s territorial sovereignty,” Capt. Jian-chang Yu said at a briefing by the National Defense Ministry.

The Chinese military exercises, including live fire, are to start Thursday and be the largest aimed at Taiwan since 1995, when China fired missiles in a large-scale exercise to show its displeasure at a visit by then-Taiwanese President Lee Teng-hui to the United States.

Taiwanese President Tsai responded firmly Wednesday to Beijing’s military intimidation.

“Facing deliberately heightened military threats, Taiwan will not back down,” Tsai said at her meeting with Pelosi. “We will firmly uphold our nation’s sovereignty and continue to hold the line of defense for democracy.”

In Washington, John Kirby, spokesperson for the National Security Council, said Wednesday that the United States was anticipating more military drills and other actions from China in coming days as the country’s armed forces “flex their muscles.”

Still, “we don’t believe we’re at the brink now, and there’s certainly no reason for anybody to be talking about being at the brink going forward,” Kirby said on ABC’s “Good Morning America.”

China’s official Xinhua News Agency announced the military actions Tuesday night, along with a map outlining six different areas around Taiwan. Arthur Zhin-Sheng Wang, a defense studies expert at Taiwan’s Central Police University, said three of the areas infringe on Taiwanese waters, meaning they are within 12 nautical miles (22 kilometers) of shore.

Pelosi’s trip has heightened US-China tensions more than visits by other members of Congress because of her high-level position as leader of the House of Representatives. She is the first speaker of the House to visit Taiwan in 25 years, since Newt Gingrich in 1997. However, other members of Congress have visited Taiwan in the past year.

Tsai, thanking Pelosi for her decades of support for Taiwan, presented the speaker with a civilian honor, the Order of the Propitious Clouds.

Shortly after Pelosi landed Tuesday night, China announced live-fire drills that reportedly started that night, as well as the four-day exercises starting Thursday.

The People’s Liberation Army Air Force also flew a contingent of 21 war planes Tuesday night, including fighter jets, toward Taiwan. Chinese Vice Foreign Minister Xie Feng also summoned the US Ambassador in Beijing, Nicholas Burns, to convey the country’s protests the same night.

Pelosi addressed Beijing’s threats Wednesday morning, saying she hopes it’s clear that while China has prevented Taiwan from attending certain international meetings, “that they understand they will not stand in the way of people coming to Taiwan as a show of friendship and of support.”

She noted that support for Taiwan is bipartisan in Congress and praised the island’s democracy. She stopped short of saying that the US would defend Taiwan militarily, emphasizing that Congress is “committed to the security of Taiwan, in order to have Taiwan be able to most effectively defend themselves.”

Her focus has always been the same, she said, going back to her 1991 visit to Beijing’s Tiananmen Square, when she and other lawmakers unfurled a small banner supporting democracy two years after a bloody military crackdown on protesters at the square. That visit was also about human rights and what she called dangerous technology transfers to “rogue countries.”

Pelosi visited a human rights museum in Taipei that details the history of the island’s martial law era and met with some of Taiwan’s most prominent rights activists, including an exiled former Hong Kong bookseller who was detained by Chinese authorities, Lam Wing-kee.

Pelosi, who is leading the trip with five other members of Congress, also met with representatives from Taiwan’s legislature.

“Madam Speaker’s visit to Taiwan with the delegation, without fear, is the strongest defense of upholding human rights and consolidation of the values of democracy and freedom,” Tsai Chi-chang, vice president of Taiwan’s legislature, said in welcome.

The administration of US President Joe Biden has sought to tone down the volume on the visit, insisting there’s no change in America’s longstanding “one-China policy,” which recognizes Beijing but allows informal relations and defense ties with Taipei.

Pelosi said her delegation has “heft,” including Gregory Meeks, chair of the House Foreign Affairs Committee, and Raja Krishnamoorthi from the House Intelligence Committee. Reps. Andy Kim and Mark Takano are also in the delegation.

She also mentioned Rep. Suzan DelBene, whom Pelosi said was instrumental in the passage of a US$280 billion bill aimed at boosting American manufacturing and research in semiconductor chips — an industry that Taiwan dominates and is vital for modern electronic

 

 

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.

 

Pelosi visits Taiwan in utter disregard to Chinese warnings

More than 30 years ago, Nancy Pelosi angered China's government by showing up in Tiananmen Square and unfurling a banner honoring dissidents killed in the 1989 protests.

On Tuesday, August 02, 2022, as speaker of the House of Representatives, Pelosi disregarded China's fiery warnings and landed in Taiwan to support its government and meet with human rights activists.

Pelosi's trip to Taiwan capped her decades as a leading US critic of the Beijing government, especially on rights issues, and underscores the long history of the US Congress taking a harder line than the White House in dealings with Beijing.

Second in line for the presidency after Vice President Kamala Harris, Pelosi became the most senior US politician to travel to Taiwan since then-Speaker Newt Gingrich in 1997. She led a delegation of six other House members.

In 1991, two years after China's bloody crackdown on pro-democracy demonstrations, Pelosi and two other US lawmakers unfurled a banner in Tiananmen reading, "To those who died for democracy in China."

In 2015, she took a group of House Democrats to Tibet, the first such visit since widespread unrest in 2008. Pelosi has regularly spoken out about human rights issues in Tibet and has met the Dalai Lama, whom Beijing reviles as a violent separatist.

China views visits by US officials to Taiwan as sending an encouraging signal to the island's pro-independence camp. Washington does not have official diplomatic ties with Taiwan but is legally bound to provide it with the means to defend itself.

Kharis Templeman, a Taiwan expert at Stanford University's Hoover Institution, said Pelosi, who is 82, would be looking to cement her legacy, while signaling support for Taiwan against pressure from Beijing.

"And what better person to send that signal than the speaker of the House herself? So she's in a very powerful symbolic position to take a stand against the CCP," Templeman said, referring to the Chinese Communist Party.

Beijing considers Taiwan part of its territory and has never renounced using force to bring the island under its control. Taiwan rejects China's sovereignty claims and says only its people can decide its future.

Chinese foreign ministry spokesman Zhao Lijian said a trip would lead to "very serious developments and consequences."

Analysts said Beijing's response was likely to be symbolic. "I think China has tried to signal that their reaction would make the US and Taiwan uncomfortable, but would not cause a war," said Scott Kennedy, a China analyst at Washington's Center for Strategic and International Studies.

Congress has long taken a harder line on Taiwan than the White House, no matter whether Democrats, such as President Joe Biden and Pelosi, or Republicans are in charge.

Republicans supported Pelosi's trip. "Any member that wants to go, should. It shows political deterrence to President Xi," Representative Michael McCaul, the top Republican on the House Foreign Affairs Committee, told NBC News. McCaul said he was invited to join Pelosi's Asia trip but was unable to do so.

The executive branch takes ultimate responsibility for foreign policy but relations with Taiwan are one area where Congress wants influence. The Taiwan Relations Act, which has guided relations since 1979, passed Congress with an overwhelming majority after lawmakers rejected a proposal from then-President Jimmy Carter as too weak.

Democrats and Republicans in the US Senate are working on a bill that would overhaul that policy, including by increasing military support for Taiwan and expanding Taipei's role in international organizations.

Pelosi's trip and Beijing’s reaction have pushed the White House to once again express - including in a call between Biden and Chinese President Xi Jinping last week - that it has no desire to change the status quo.

Biden cast doubt publicly on the wisdom of the trip last month in a rare break with Pelosi, a close ally.

"I think that the military thinks it's not a good idea right now, but I don't know what the status of it is," Biden told reporters.

Pelosi's office refused ahead of the visit to rule out or confirm a possible stop by the speaker, citing security concerns typical for top US officials.

Pelosi announced on Sunday that she was leading a congressional delegation to Singapore, Malaysia, South Korea and Japan "to reaffirm America's strong and unshakeable commitment to our allies and friends in the region."

US defense officials played down the risk of China's military interfering with Pelosi's visit, but they were worried that an accident could spiral into a larger conflict.

 

Finding reasons behind the US support for war in Ukraine

Biden Administration could have avoided pushing Ukraine into war in the first place by not inviting Russian immediate neighbor to join NATO, but it chose the war. Many are of the view that it was not for any love for the people of Ukraine.

Is it because it is a country populated by white people? In 1994, President Clinton did nothing while genocide of Tutsi ethnic Rwandans was going on in Rwanda resulting in the deaths of some 500,000 to 662,000. Was that utter neglect because those were black people?

Or is it because there is a considerable number of Ukrainians living in the United States who would vote for Biden’s reelection in 2024?

Or is it because usually a war president gets reelected?

Or was it that Biden wanted to look “macho”, a president who cowed down Russia?

Or are Biden administration and the Pentagon pursuing the policy suggested by recent Rand Corporation thesis to break up Russia by weakening it by this brutal war?

Or are he and the democrats paying back the ‘defense’ contractors—for their donations to the Democrats during elections-- with billions of dollars in profit by this war?

The Rand Corporation’s April 2019 article on Russia recommends that we should overextend and weaken Russia by directly addressing its vulnerabilities, anxieties, and strengths, exploiting areas of its weakness while undermining Russia’s current advantages.

Further it states that “Russia’s greatest vulnerability, in any competition with the United States is its economy.” It seems the reason; United States has embarked upon provoking Russia to invade Ukraine.

United States is using double edged sword: 1) weakening Russia militarily by this proxy war and 2) weakening Russia economically by brutal sanctions ever imposed on a country.

The US administration government has doled out more than US$54 billion in arms and other categories. It is anticipated that more will come as the war drags on.

These billions in donation to Ukraine, a country that is 9,181 kilometers away from the United States and has no strategic value to the United States.

These billions are not coming from president or politicians; this is taxpayers’ money. The taxpayers must ask the government, why to donate such huge amounts to a country which has done nothing for America?

President Biden’s son, Hunter Biden supposedly made US$11 million from 2013 to 2018, being made member of Board of Directors of Ukraine gas company, Burisma, though he had no knowledge of gas production, refining or transportation.

Biden, Nancy Pelosi, Michell McConnel, Jill Biden and others went and paid visit to Zelensky and his wife. Why so much love and respect for Ukraine and its president?

The US provocation of Russia resulting in this brutal but avoidable war will go down in history as one the most irresponsible and reckless act committed by the United States, a foreign policy blunder that could trigger a nuclear war between Russia and the United States.

 

United States targets Chinese and UAE firms

According to a Reuters report, the United States on Monday imposed sanctions on Chinese and other firms it said helped to sell tens of millions of dollars' in Iranian oil and petrochemical products to East Asia as it seeks to raise pressure on Tehran to curb its nuclear program.

The US Treasury and the US State Departments have imposed sanctions on a total of six companies, four based in Hong Kong, one in Singapore, and one in the United Arab Emirates (UAE) in actions that were announced in separate statements.

The Treasury accused Persian Gulf Petrochemical Industry Commercial Co. (PGPICC), one of Iran's largest petrochemical brokers, of using the firms to facilitate the sale of Iranian petroleum and petrochemical products to East Asia.

The Treasury targeted UAE-based Blue Cactus Heavy Equipment and Machinery Spare Parts Trading, which it said helped sell millions of dollars of Iranian-origin petroleum products to Hong Kong-based Triliance Petrochemical Company, which has previously been sanctioned by the United States.

It also targeted Hong Kong-based Farwell Canyon HK and Shekufei International Trading Company for facilitating such sales for onward shipment to buyers in East Asia.

The Treasury accused PGPICC of using the firms' bank accounts, along with those of Hong Kong and Malaysia-based PZNFR Trading, to collect millions of dollars in proceeds.

Separately, the State Department sanctioned Singapore-based Pioneer Ship Management for allegedly managing a vessel that carried Iranian petroleum products and Hong Kong-based Golden Warrior Shipping Company, for alleged transactions related to Iranian oil and petroleum products.

The actions freeze US-based assets and generally bar Americans from dealing with them. Others that engage in certain transactions with the targeted firms also risk being sanctioned.

The steps represent the third round of US-Iran related sanctions against Chinese firms in the last two months.

Since taking office in 2021, US President Joe Biden has been loath to sanction Chinese entities engaged in oil trade with Iran due to hopes of securing an agreement to revive the 2015 Iran nuclear deal.

Efforts to resurrect the deal - under which Iran had curbed its nuclear program in exchange for relief from US and other sanctions - have so far failed, leading Washington to look for other ways to increase pressure on Tehran.

"The United States continues to pursue the path of diplomacy to achieve a mutual return to full implementation of the Joint Comprehensive Plan of Action," the Treasury's Under Secretary for Terrorism and Financial Intelligence, Brian Nelson, said in the statement, referring to the 2015 deal by its formal name.

"Until such time as Iran is ready to return to full implementation of its commitments, we will continue to enforce sanctions on the illicit sale of Iranian petroleum and petrochemicals."

Reacting to the new sanctions, Iran's Foreign Ministry spokesperson Nasser Kanaani said in a statement that Iran will respond decisively and firmly to the White House's continuation of sanctions.

Ship carrying 26,000 tons corn leaves Ukraine

According to The Joint Co-ordination Centre (JCC) of the Black Sea Grain Initiative, Razoni sailed from the port of Odesa today in the early hours, carrying 26,000 tons of corn destined for Lebanon.

Ukraine Minister for Infrastructure, Alexander Kubrakov, said 16 ships have been blockaded in Odesa since the start of the war and are awaiting their turn to sail.

 “In parallel, we will receive applications for the arrival of new vessels to load agricultural products,” said Kubrakov.

JCC was set up to co-ordinate the agreement between Russia, Ukraine and the UN to facilitate the safe export of Ukraine’s large grain stocks to the world market—the Black Sea Grain Initiative. JCC comprises representatives from Ukraine, Russia, Turkey and the UN.

The shipment aboard Razoni is expected to arrive in Turkish waters for inspection on August 02, 2022, before sailing to its final destination, Tripoli.

Under the terms of Black Sea Grain Initiative, co-ordinates have been established to create a Humanitarian Maritime Corridor. The details of the corridor have been distributed and the JCC requested participants to ensure their militaries are aware of the vessel’s passage and its right to safety.

“Today Ukraine, together with partners, takes another step to prevent world hunger,” said Ukraine Minister for Infrastructure Alexander Kubrakov.

“Unlocking ports will provide at least US$1 billion in foreign exchange revenue to the economy and an opportunity for the agricultural sector to plan for next year.”

Signed on July 22, 2022, the 120-day deal allows for the export of grain from western Ukraine ports Yuzhne, Chornomorsk, and Odesa, ports which accounted for 65% of Ukraine’s total grain exports over the past five years, according to Bimco.

While the ports historically account for almost two-thirds of grain exports, volume will undoubtedly be limited by various impacts of Russia's invasion of Ukraine.

 “With this deal, the UN hopes to increase monthly grain exports from Ukraine by five million tons. However, since over the past five years, these three ports have not ever handled such a high amount of grain, meeting this target could prove to be a challenge,” said Niels Rasmussen, Chief Shipping Analyst at Bimco.

“Even if port logistics accelerate to expedite exports, the need to escort ships in and out of the ports is likely to cause some congestion.” 

There are also questions over whether seafarers, operators, ship owners, and insurers will be willing and able to work in the region.

Ukraine is a significant producer of grains and oilseeds, with arable land accounting for around 55% of its land area according to the US Department for Agriculture (USDA) and agriculture accounting for 41% of Ukraine’s total exports by value in 2021.

Some 22 million tons of grain are stranded in Ukraine ready for export, and a further export surplus of 25 million tons is expected from the 2022 harvest. There is an urgent need to move grain; with the wheat harvest underway and corn harvest to follow in September, stored grain needs to be exported swiftly to make room for the new crop.

“A significant obstacle to Ukrainian grain exports will be the voyage risk and corresponding insurance premiums. For the shipping of Ukrainian grain to be attractive, high rates will be necessary to mitigate risk-related expenses,” said Rasmussen. “Russia’s recent missile strikes in ports such as Odesa will add to the insecurity and uncertainty of operating in the Black Sea.” 

The impact of the war in Ukraine has hit production for key agricultural exports. Usually the world’s largest producer and exporter of sunflower meal and oil, Ukraine’s sunflower meal exports are forecast to fall from almost 66% of global exports to 40%, and sunflower oil exports are forecast down from almost half of global exports to 35%.

 “Due to limited global supply of wheat and maize, a return of Ukrainian grain to the global market would positively impact the Panamax, Supramax and Handysize segments. Additionally, the boost in Ukrainian exports would help combat inflation and food insecurity, particularly in emerging economies, and help bring needed stability to the global economy,” said Bimco.