US calls on OPEC and its allies to pump more oil

US President Joe Biden's top aides are pressuring OPEC and its allies to boost oil output to tackle rising gasoline prices that they see as a threat to global economic recovery.

Biden's national security adviser Jake Sullivan criticized the world's major oil producers, including Saudi Arabia, for what he said were insufficient crude production levels in the aftermath of the global COVID-19 pandemic.

“At a critical moment in the global recovery, this is simply not enough,” he said in a statement.

US gasoline prices are running at about $3.18 a gallon at the pumps, up more than a dollar from last year at this time, according to the American Automobile Association.

The unusual statement ratcheted up international pressure and comes as the administration tries to contain a range of rising prices and supply bottlenecks across the economy that have fueled inflation concerns.

Biden has made recovering from the economic recession triggered by the pandemic a key priority for his administration.

The message also underscored the new dynamic between Washington and OPEC since Biden's predecessor, Donald Trump, broke with prior practice in demanding specific policy changes to adjust prices. Trump had threatened to withdraw military support from OPEC's leader Saudi Arabia over output, which at the time he thought was too high and hurting US-based drillers.

Biden's administration is pressing countries within OPEC+, which groups the Organization of the Petroleum Exporting Countries with Russia and other big producers, "on the importance of competitive markets in setting prices," Sullivan said. “Higher gasoline costs, if left unchecked, risk harming the ongoing global recovery,” he added. “OPEC+ must do more to support the recovery.”

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International benchmark Brent crude was trading at around $70 a barrel on Wednesday, down half a percent, after the US issued its statement. That is lower than the prices above $77 in early July, but still represents an increase of nearly a third from the beginning of the year.

The Biden administration's push for lower fuel prices grates with its efforts to secure global leadership in the fight against climate change, an agenda anchored by efforts to transition the economy away from fossil fuels toward cleaner energy sources and electric vehicles.

A Republican lawmaker criticized Biden, a Democrat, for his anti-fossil fuel stance, arguing it has discouraged domestic energy production.

“It’s pretty simple: if the President is suddenly worried about rising gas prices, he needs to stop killing our own energy production here on American soil,” said Republican Senator John Cornyn of Texas, the top US oil producing state.

Robert Yawger, director of energy futures at Japanese bank Mizuho, also critiqued the administration's statement. "I don't know why they aren't trying to get US producers to increase production," he said.

US oil production has been stagnant at about 11 million barrels per day (bpd) since the fallout of the pandemic pulled it from a record high of 12.3 million bpd in 2019.

OPEC+ had implemented a record output cut of 10 million bpd, about 10% of world demand, as global energy demand slumped during the pandemic, but has been gradually raising output since. As of July, the cut had been eased to about 5.8 million bpd.

Ahead of talks, OPEC forecasts point to oil supply deficit in August

OPEC estimates that there will be an oil supply deficit in August and in the rest of 2021.

At a meeting held in July, OPEC+ agreed to boost output by 400,000 bpd a month starting in August until the rest of the 5.8 million bpd cut is phased out. OPEC+ is scheduled to hold another meeting on Sept. 1 to review the situation.

The White House on Wednesday also directed the Federal Trade Commission (FTC), which polices anti-competitive behavior in domestic US markets, to investigate whether illegal practices were contributing to higher US gasoline prices.

“During this summer driving season, there have been divergences between oil prices and the cost of gasoline at the pump,” Biden's top economic aide, Brian Deese, wrote in a letter to FTC chair Lina Khan.

He encouraged the FTC to “consider using all of its available tools to monitor the US gasoline market and address any illegal conduct.”

(Source: Reuters)

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