Analysis: “Slap”: Biden’s punch to MBS failed to significantly move the OPEC arrow

The president left Saudi Arabia without the kingdom’s public agreement to help with gas prices, but White House officials have expressed optimism that aid will indeed be on its way.

Now it’s clear that Biden’s political gamble to get along with MBS hasn’t paid off in the big way that Americans will feel at the gas station, at least not yet.

This is not enough to move the needle in a world consuming 100 million barrels of oil every single day.

“It’s negligible, almost unnoticeable,” Bob McNally, president of consulting firm Rapidan Energy Group, told CNN.

By comparison, OPEC+ announced a larger an increase of 648,000 bpd at the end of June.

According to McNally’s analysis, this latest move represents the smallest percentage increase in production in OPEC history.

“OPEC+ has done the bare minimum. The market interprets this almost as a rebuff,” he said. “It’s purely a symbolic gesture.”

Others go even further, describing OPEC+’s actions as an insult given Biden’s trip to Saudi Arabia, the de facto leader of the producer group.

“This is a slap in the face for the Biden administration. This trip, meeting with MBS just didn’t work out,” Matt Smith, Kpler’s lead Americas oil analyst, told CNN.

Robert Yauger, vice president of energy futures at Mizuho Securities, similarly called the OPEC+ decision a “slap in the face.”

“I have to say, I’m surprised they were only throwing out 100,000 barrels a day,” Yauger said.

“A step in the right direction,” says the White House.

Oil prices initially rose on news from OPEC+ as the group of producers did not act more aggressively. However, the price of oil later changed after new government statistics showed an unexpected jump in inventories, renewing fears of weakening demand.

Even the White House has acknowledged that the OPEC+ decision will not significantly affect gasoline prices for Americans.

“Well, no, it doesn’t,” White House senior energy security adviser Amos Hochstein said when CNN’s Jim Sciutto asked if the move would have major repercussions.

In contrast, on July 19, Hochstein told CNN he was “pretty confident” that OPEC+ would start increasing production “as a result of conversations with the president.”

Hochstein described Wednesday’s move as “a step in the right direction” but declined to say that if Biden was disappointed, the increase wasn’t bigger.

recession anxiety

Of course, there may be legitimate reasons why OPEC+ decided not to heed Biden’s call to increase production.

Recession fears have intensified in recent weeks, fueling concerns in the oil market about declining energy demand. U.S. oil prices closed on Monday at their lowest level in five months, relieving pressure from OPEC+ to boost production significantly.

After gasoline prices topped $5 a gallon for the first time in June, gasoline prices also dropped significantly. The national average for regular gasoline fell to $4.16 a gallon Wednesday marketing According to AAA, 50 consecutive days of falling prices.

Doubts are also growing in the oil market about how much OPEC+ can actually increase production, even if it wanted to.

The producer group consistently falls short of its own production targets, raising questions about how much spare capacity remains outside of Saudi Arabia and the United Arab Emirates.

OPEC+ hinted at this issue in its statement on Wednesday, saying “the severely limited availability of excess capacity requires it to be used with great care in response to severe supply disruptions.”

“I suspect they don’t have zoom barrels,” Mizuho’s Yauger said.

Regardless of the reason for the marginal increase in OPEC+ production, it’s hard to imagine that Biden got what he wanted when he grudgingly agreed to meet with MBS.