The group OPEC+ has stuck to their plan of a 648,000 barrels per day increase in August and held back from any talks from September, mounting concerns on a tight oil market and future targets.
The group is more than half a billion barrels behind on its commitment to supply oil to the world with its compliance rate at 256 per cent in May, 2.7 million barrels a day below their collective target. OPEC+ is struggling to keep up with production. Then earlier in the week, French President Emmanuel Macron said he had been told by the United Arab Emirates’ (UAE) president that both the UAE and Saudi Arabia could barely boost oil production.
However what will be of interest is President Biden’s trip to the Middle East next month. Soaring prices at the pump have become a political issue and to supplement the tight market, Biden has tapped into the strategic petroleum reserve which is only a temporary measure.
The stakes are high for the oil market because Saudi Arabia and the UAE are the only countries with significant spare capacity to pump crude. Without a pledge from the two OPEC members to boost output, the pain of high fuel prices are likely to persist.
In a news conference in Spain, President Biden said that he would not directly press Saudi Arabia to boost oil output to help put a lid on soaring crude prices. Instead, he’ll request more output at the Gulf Cooperation Council forum. This trip could be quite significant to the price of oil.
Meanwhile, crude posted its first monthly fall since November as OPEC+ completed the return of output stopped during the pandemic.
West Texas Intermediate has fallen US$4.02 or 3.7 per cent to US$105.76 a barrel, posting a monthly decline of 7.8 per cent. Oil is still about 45 per cent higher this year as the global economic recovery coincided with reduced flows after Russia’s invasion in Ukraine late February.
Oil prices were also weighed lower after the US consumer spending edged up 0.2 per cent in May from the month before, the weakest gain so far this year, following a downwardly revised 0.6 per cent rise in April. Real or inflation-adjusted personal spending declined by 0.4 per cent, the first drop so far this year, in a sign that persistently high consumer prices have started to weigh on households affordability.
Sources: Bloomberg, Reuters, EIA, Trading Economics