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OPEC+ Boosts Flagging Prices

June 12, 2023

With summertime fun in full swing and temperatures rising, OPEC+ has announced broad measures to boost flagging oil prices.

  • Saudi Arabia has announced it will reduce production July 1st to 9 million BPD (barrels per day). That's 1 million less than in May.
  • OPEC+ as a group has extended production cuts into 2024, which may increase market stability.
  • Increased prices assure Russia, a member of OPEC+, more funds to further its Ukrainian aggression.

What will this mean at the pump? Yes, increased prices are likely, but the government could take action to help offset some of the price pressure.

Unfortunately, from Day One, January 20th 2021, President Biden declared war on fossil fuels by immediately revoking the presidential permit for the Keystone XL pipeline that would have transported fossil fuels from Canada to US refineries. Thus, he endorsed the continued hazardous transport by truck, rail, and ship at least quintupling the cost to the refiner (and the consumer) and producing more climate-negative emissions. He then blocked exploration and drilling on government lands, later overturned by the New Orleans Federal Court.

Beyond the pump: As the Energy Ministers of Saudi Arabia and Quatar at the OPEC+ meeting and at the Quatar Energy Forum pointed out, oil distillates are used to make plastics, medicines, cosmetics, etc. and to operate various types of machinery in manufacturing from sewing machines to welding to generators.

Our concerns about Global Warming leading to the electrification of autos and heating, etc. cannot be supported by wind and solar and biomass before 2050, if ever. The latest push -- using hydrogen -- is another log on the fire, but oil and its byproducts will be needed long into the forseeable future. 

Oil producers, especially those in the Middle East, know they have a valuable, limited resource. It behooves them to husband it carefully to get their best returns. A few, like the UAE (United Arab Emirates) have taken their profits and built a mecca for industry and tourism in Dubai as an alternative future source of revenue. Others are trying, successfully, to follow their example by broadening their appeal and their influence. Sovereign wealth funds have grown in worth and influence, even on occasion affecting the U.S. stock market. 

We, as Americans, can also benefit from higher oil and gas prices by exporting Liquified Natural Gas to Europe and oil to Latin America.

The administration has blindly followed the most radical and impractical Green Menu designed to make our near-term energy supply scarce, expensive and unreliable. When the power grids are suffering brownouts, it will be too late to suck up natural gas or find needed oil.

Of course, if you have been watching the prices of Brent and WTI Crude, they are now down considerably from their peaks. Don’t expect this respite to last.

I have no Crystal Ball but count on prices rising to new or near-new highs again in time for Thanksgiving. There is a certain cyclicality to prices and Winter has a different demand pattern.

Of course, it's much too early to say what the future will hold. I can only give you my opinion. Rest assured I'll continue to monitor changes in the energy market as events unfold.