The White House has accused OPEC and its allies of putting the global economic recovery at risk by refusing to pump more oil. That sets up a geopolitical showdown that could spark more price swings and prompt the United States to release crude from its strategic reserves.
The Biden administration said it would “consider the full range of tools at our disposal to bolster resilience and public confidence” after the OPEC+ coalition, which includes Saudi Arabia and Russia, disregarded calls from big oil consuming nations including the United States to increase output by more than planned in December.
“Our view is that the global recovery should not be imperiled by a mismatch between supply and demand,” a spokesperson for the US National Security Council said in a statement. “OPEC+ seems unwilling to use the capacity and power it has now at this critical moment of global recovery for countries around the world.”
The price of Brent crude oil, the global benchmark, has roughly doubled over the past year to $81 per barrel as the global economy rebounds from its pandemic slump. Bank of America predicts that prices will zoom even higher and hit $120 per barrel by June 2022.
Soaring oil prices are driving up gas prices and more broadly fueling inflation, hurting vulnerable households and dampening the global economic recovery at a crucial moment. The United States, Japan and India have all called on OPEC+ to open the taps wider to help bring down prices.
Elevated gasoline prices could have political ramifications for Democrats heading into next year’s midterm elections. US gas prices have surged to a seven-year high of $3.40 a gallon nationally and are flirting with $4 in Nevada, Washington and Oregon. Gasoline and diesel prices have hit record highs in parts of Europe and the United Kingdom, too.
Natural gas prices are also soaring, piling on pain for low-income households around the world as they turn on their heating at the start of the northern hemisphere winter.
Supply from where?
OPEC has been coordinating production decisions in recent years with other major suppliers, including Russia, as part of the larger OPEC+ grouping. The coalition has been adding back supplies that were slashed during the pandemic when demand collapsed, but in a very gradual way in a bid to meet rising consumption without triggering sharp price falls.
On Thursday, OPEC+ showed it was in no hurry to answer calls for increased production.
“With regard to the United States, yes we have been having discussions at all levels and we still believe we are doing the right job and the most convenient job,” Saudi energy minister Prince Abdulaziz bin Salman said.
Should the Biden administration attempt to address rising prices on its own, it has one primary tool: the Strategic Petroleum Reserve (SPR), which can hold up to 714 million barrels of crude and is the world’s largest backup oil supply.
The reserve is a complex of four sites along the Texas and Louisiana gulf coasts that have deep underground storage caverns, between 2,000 and 4,000 feet below the surface. Only the US president can order crude stored there to be released.
Last month, Energy Secretary Jennifer Granholm suggested that tapping the SPR was under active consideration — before the Energy Department later walked back her comments by clarifying there was no “immediate plan” to do so.
The conflict between OPEC+ and the White House could cause the market to swing in the coming weeks.
“The now open disagreement between OPEC and the US administration and the threat of an SPR release will nonetheless increase the volatility in oil prices,” analysts at Goldman Sachs wrote on Thursday. “This volatility may be further exacerbated by headlines around the resumption of [nuclear] negotiations with Iran, tentatively scheduled for late November, as well as winter weather.”
There are also reasons to doubt that releasing oil from the SPR would have a significant impact on prices.
The Goldman Sachs analysts said a release of 60 million barrels “would only be of modest and temporary help.” It would reduce Brent prices at the end of this year by only $3 per barrel, and it could discourage US shale producers from increasing their output, leading to higher prices in 2022.