US oil peaks in 7 years after Opec + resists calls to ramp up production

U.S. oil prices hit their highest level in seven years after Opec and its allies refused to speed up plans to increase crude production, rejecting White House calls to help cope to a growing global energy crisis.

Europe and Asia have been plagued by tight energy supplies which have pushed natural gas and coal prices to the highest level on record, while oil prices have risen steadily as the global economy has shrunk. rebounded from the depths of the coronavirus pandemic.

But the expanded Opec + group, which has included Russia since 2016, said on Monday it would stick to a plan formulated this summer to gradually increase oil production by just 400,000 barrels per day each month, despite warnings of a growing deficit between supply and demand.

The move threatens to increase tensions between major energy consumers such as the United States, Europe and China, who fear inflation in energy costs could derail their economic recovery, and the a broad producer group, which controls more than half of the world’s oil supplies.

US oil benchmark West Texas Intermediate jumped 3% after meeting to over $ 78 a barrel for the first time since 2014, while Brent crude, the international marker, rose to $ 82 a barrel for the first time in three years.

“With this move, Opec + seems pleased to see oil prices rise despite concerns about the worsening energy crisis in Europe and Asia,” said Helima Croft, head of global commodities strategy at RBC. Capital Markets.

“The question for the Biden administration now is whether it wants to make further appeals to Saudi Arabia to do more to help bring prices down,” she added.

Croft said the White House situation was complicated by his own drive to reduce reliance on fossil fuels ahead of the UN climate talks in Glasgow next month.

Jen Psaki, the White House press secretary, said the United States had been in contact with OPEC producers about “a compromise solution to allow these proposed production increases to be made. move forward, “but did not accuse the producer group of soaring crude prices. She confirmed that Jake Sullivan, the White House’s national security adviser, had raised oil prices with Saudi officials during a visit to the kingdom last week.

“We will use all the tools at our disposal even though we are not members of OPEC to ensure that we can keep gas prices low for the American public,” she said, citing the request of administration that the Federal Trade Commission monitors the country’s oil market to prove supplier collusion.

OPEC + agreed to record production cuts last year when demand for oil collapsed amid the worst lockdowns in the Western world. But investment bank Goldman Sachs warned last week that global crude stocks are now declining at a record pace and said it believes prices could hit $ 90 a barrel later this year.

Saudi Arabia, OPEC’s de facto leader and one of the United States’ main allies in the Gulf, avoided its usual press conference after the online meeting of energy ministers for the second month in a row , refusing to explain her strategy or whether she believes the oil market. is provided under.

But people familiar with the talks said Prince Abdulaziz bin Salman, the country’s energy minister and half-brother to Crown Prince Mohammed bin Salman, did not believe oil prices had risen enough in recent months to justify a change of course, despite the rise in other energy commodities. Demand for oil could also drop again this winter if the coronavirus pandemic requires lockdowns again.

“With the mixed signals and uncertainties surrounding the market, the case for a change of course is not there,” said Bassam Fattouh, director of the Oxford Institute for Energy Studies, where Prince Abdulaziz sits on the board. administration.

There is also a larger element of frustration that fossil fuel producers are being sidelined in the race to cut carbon emissions by large industrial economies, despite still making up the vast majority of their energy supplies. .

Higher prices are seen as necessary by OPEC countries both to stimulate future investment in oil and gas production as demand continues to grow and to remind advanced economies of their continued importance to health. economy at large.

JPMorgan’s Christyan Malek said Opec wants to appear stable in its decision-making, while rising oil prices are also helping to strengthen the economies of producing countries.

“Oil prices have not risen at the same rate as natural gas or coal, so there is less immediate pressure to act,” Malek said.

“There is also a belief that underinvestment in the oil sector could lead to an even more serious crisis than the one we are experiencing today in natural gas and OPEC wants policy makers to take a potential seriously. petroleum supercycle, even as they try to move away from fossil fuels.

Record prices for natural gas are also boosting demand for crude. Amin Nasser, the boss of Saudi state oil company Saudi Aramco, told a conference on Monday that he believes the switch from gas to oil has already boosted demand by 500,000 bpd, a higher level to the planned production increase of Opec + next month.

Late in the New York trading session on Monday, WTI stood at $ 77.62 per barrel, up 2.3%, while Brent came in at $ 81.26 per barrel, in 2.5% increase.

Additional reporting by Derek Brower in New York and James Politi in Washington