OPEC and its oil-producing partners have rebuffed President Joe Biden’s calls for increased production amidst rising fuel prices, retorting that if the United States believes the world’s economy needs more energy, then it has the capability to increase production itself. The OPEC+ alliance, made up of OPEC members led by Saudi Arabia and non-member top producers guided by Russia, approved an increase in production of 400,000 barrels per day for the month of December.
Several OPEC ministers have expressed concern over loosening the taps, wary of renewed setbacks in the battle against the pandemic and the slow speed of economic recovery. Countries claim that because demand is not yet high enough to justify increased production, there is a risk of market distortion. Luckily for consumers, OPEC members also have a rich history of cheating.
OPEC+ supply restraint has supported a rally that pushed global benchmark Brent crude to a three-year high of $86.70 last month.
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To Produce or Not to Produce, That Is the Question?
President Biden’s overtures to OPEC + sound disingenuous against the backdrop of a Democratic Party energy doctrine, announced in January 2021, that seeks to limit production of hydrocarbons in the US and limit GHG emissions globally. This year the Biden administration announced a moratorium on drilling permit issuances on federal lands and waters, and effectively killed the KEYSTONE XL pipeline from Canada to the U.S. in the name of environmental and Native American tribal concerns. Biden wants to appeal to his Democratic voter base by reducing the climate costs of domestic fuel production, while also pressuring other nations to increase their output to lower domestic oil prices. In other words, politically, he wants to have his cake and eat it too.
The Biden administration’s refusal to increase oil and gas output also puts Europe in a particularly difficult situation, as the gas production in the UK, North Sea, and Holland is depleting, and there is no domestic gas supply besides Norway. Thus, the current US energy doctrine has only increased Russia’s influence in the region by making it’s Nord Stream 2 Gas Pipeline – which would see another 55 billion cubic meters (bcm) of natural gas supplied to the EU while circumventing Ukraine – a very attractive offer for an energy-starved Europe. The continent’s energy woes are exacerbated by poor public policy making by the EU’s de-facto leader, Germany – which has prioritized closing nuclear plants over decommissioning coal and gas plants. Despite over $30 billion Euros invested in the German Energiewende (energy transformation) last year alone, rapid declines in the cost of wind and solar have not translated into cheap electricity due to decommissioning of coal and nuclear plants.
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