The OPEC oil cartel and allied producing countries including Russia will raise production by 648,000 barrels per day in July and August, offering modest relief for a global economy suffering from soaring energy prices.
The cost of oil, which began to rise sharply to start of the year, spiked after Russia’s Feb. 24 invasion of Ukraine. U.S. crude prices are now up 54% since the beginning of the year, and international crude prices are up almost 40% in that time.
Gasoline prices have risen in tandem and hit another all-time high in the U.S. Thursday.
That’s become a potential problem for U.S. President Joe Biden in mid-term Congressional elections this fall.
Elevated prices are also a threat to the global economy as it emerges from the pandemic, with both companies and families potentially reducing activity to deflect those costs.
OPEC, whose de facto leader is Saudi Arabia, had for months resisted pressure from the White House to increase oil supply more quickly. That stance, along with a European Union agreement to end most oil imports from Russia, has pushed prices higher. Gasoline and diesel prices have also been rising due to a lack of refining capacity to turn crude into motor fuel.
The U.S. “welcomes” the increased production, White House press secretary Karine Jean-Pierre said in a prepared statement. “The United States will continue to use all tools at our disposal to address energy prices pressures.”
Biden administration officials have recently visited Saudi Arabia for talks on energy supplies and regional security issues.
The decision Thursday steps up the pace by the alliance, known as OPEC+, in restoring cuts made during the worst of the pandemic recession. The group had been adding a steady 432,000 barrels per day each month to gradually restore production cuts from 2020.
The increase did not appear to ease concerns about tight supply and oil prices actually rose after the decision was announced Thursday.
U.S. crude, which had fallen by as much as $3 per barrel early in the day, reversing course and traded up almost 2% at $117.15. International benchmark Brent rose 0.7% at $117.02. Market traders may have expected more from the meeting, such as an indication from Saudis that they could make up for any shortfall due to sanctions against Russia.
Instead the alliance’s statement merely mentioned reopening from Covid-19 lockdowns in “major global economic centres” and the end of seasonal maintenance work at refineries as justifications for the incremental increase. Lockdowns in Shanghai and Beijing have sapped fuel demand in China.
OPEC+ decisions have been complicated by the group’s failure to meet its production targets due to underinvestment and other roadblocks in some member countries. Actual production has lagged the scheduled increases.
The U.S. saw a record high average gasoline pump price on Thursday of $4.71 per gallon, according to AAA. The price of crude makes up about half the price of gasoline at the pump in the U.S., and prices could go even higher as the summer driving season gets under way. High gas prices for drivers are a potential factor in U.S. politics with mid-term Congressional elections approaching later this year.
In Germany, the government has sought to soften the blow to consumer finances from energy inflation by launching deeply discounted transit passes that enable unlimited use of local trains, subways and buses for 9 euros ($10) per month.