US leans harder on Opec+ to boost production

President Joe Biden's administration is urging Opec+ members to move faster to unwind production cuts they made last year, citing concerns that unchecked fuel price increases will undermine the global economic recovery.

Opec+ "must do more to support the recovery" by accelerating the timeline for offsetting production declines it made last year when Covid-19 lockdowns peaked, White House national security adviser Jake Sullivan said today. The administration says it has been engaging with Opec+ members to stress that point.

"At a critical moment in the global recovery, this is simply not enough," Sullivan said.

Opec+ members last month agreed to collectively increase output by 400,000 b/d each month through April, followed by monthly production increases of 432,000 b/d until last year's cuts are reversed, with the possibility to pause output increases depending on market conditions. That timeline would have Opec+ fully reverse last year's cuts as soon as September 2022 or as late as December 2022.

The US administration has a more direct way of affecting Opec production levels, but that is tied to the outcome of stalled US-Iran nuclear talks. Lifting US sanctions against Tehran would boost global supply once Iran restores its production and export capacity.

US regular grade retail gasoline prices for the week ending on 9 August averaged $3.17/USG, the highest in nearly seven years, according to the US Energy Information Administration. A surge in travel demand this summer, the economic recovery and only modest increases in domestic crude production have put upward pressure on prices.

Biden's administration last month leaned on Opec+ members publicly for the first time to reach a deal on production increases, partly because of concerns about gasoline prices in the US.

But the diplomatic push on Opec+ to boost output, at the same time the administration constraints production on federal land, will give Republicans further ammunition to argue Biden's policies are unfair toward domestic energy production.

"Begging the Saudis to increase production while the White House ties one hand behind the backs of American energy companies is pathetic and embarrassing," US senator John Cornyn (R-Texas) said.

The effort also undercuts Biden's strategy of reducing US dependence on fossil fuels as a way to help address climate change.

The White House is separately leaning on other federal agencies to make sure the prices consumers pay at the pump are competitive. National Economic Council director Brian Deese today asked Federal Trade Commission (FTC) chair Lina Khan to use the agency's tools to monitor gasoline prices and investigate if there was any "illegal conduct" that might be causing price increase.

"The FTC could examine the asymmetrical phenomenon in oil and gas markets in which [gasoline] prices tend to rise more quickly to adjust to spikes in oil prices than they fall when the price of oil declines," Deese wrote.

The letter was also sent to the US Commodity Futures Trading Commission (CFTC), the US Federal Energy Regulatory Commission and the US Justice Department.

The CFTC has yet to release a comprehensive study offering a full analysis of the crash in Nymex front-month WTI crude price on 20 April 2020 that settled at negative $37.63/bl, and instead has only completed an interim report.

By Chris Knight