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BRING ON THE BARRELS: OPEC+ put aside its standing assessment of a “balanced” oil market and committed earlier today to produce more oil beginning next month.
The pledge to raise output by 648,000 barrels per day is the largest such commitment since it first established in July 2021 that it would increase production by 400,000 barrels per day as demand recovered with the global economy.
Ministers noted “the importance of stable and balanced markets for both crude oil and refined products,” the cartel said.
How things were tracking: OPEC+ had resisted asks for higher production targets and concluded during its May meeting that “continuing oil market fundamentals and the consensus on the outlook pointed to a balanced market.”
Just nine days ago, Saudi Arabian foreign minister Prince Faisal bin Farhan Al Saud also said the kingdom had “done what it can” for the market.
What’s happened since: OPEC+ noted in its announcement that economic reopenings from coronavirus lockdowns “in major global economic centers” were a factor.
Lockdowns in Shanghai began easing this week, which some analysts implicated for helping to send oil prices into $120-per-barrel territory.
The cartel also said it expects global refinery activity to increase after seasonal maintenance.
But the EU’s announcement of a planned embargo of most Russian oil imports also weighs heavily, even if it went unmentioned in OPEC+’s announcement. Note that nonmember Russia is a party to the arrangements of OPEC+.
Kevin Book, managing director of ClearView Energy Partners, noted it’s the West’s intention to degrade Russia’s production and revenue.
With that, the cartel is looking at “a sanctions-driven structural shortage.”
“If the sanctions are a short-term affair and Russian oil is coming back, that’s one thing,” he told Jeremy. “The war doesn’t look like it’s a short-term affair.”
He also mentioned the advent of the summer driving season: “Prices that destroy customers by collapsing demand are not what OPEC wants,” he said.
No guarantees: OPEC has struggled in recent months to meet its production targets. In April, OPEC+ fell short of its targeted production total by about 2.7 million barrels per day, according to ClearView.
“We are talking about numbers on a page, not molecules on a ship,” Book said, although he added, “At some point, for there to be molecules on a ship, there have to be numbers on a page.”
A White House angle: The production announcement was welcome news to the White House, which began prodding the Saudis and OPEC for more oil as early as October — when prices were rising but well before the war in Ukraine sent prices skyward.
“We recognize the role of Saudi Arabia as the chair of OPEC+ and its largest producer in achieving this consensus amongst the group members,” press secretary Karine Jean-Pierre said in a statement.
President Joe Biden is considering visiting Saudi Arabia, with which he’s had a contentious relationship, to engage in energy diplomacy, the Associated Press reported this morning.
Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Jeremy Beaman (@jeremywbeaman) and Breanne Deppisch (@breanne_dep). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.
EU PASSES NEW SANCTIONS PACKAGE, GRANTS ELEVENTH-HOUR DEMAND FROM HUNGARY: EU leaders finally approved text for its sixth round of sanctions against Russia today, successfully advancing the package after nearly four weeks of intense negotiations, and after leaders agreed to significant carve-outs demanded by Hungarian Prime Minister Viktor Orban.
The victory comes after leaders agreed to exempt in the short term Hungary and other landlocked nations from the Russian oil ban by extending the ban solely to seaborne imports. But Orban threw leaders for another unexpected, eleventh-hour loop late yesterday — this time, demanding Patriarch Kirill, the head of the Russian Orthodox Church and a close ally of Russian President Vladimir Putin, be exempt from a list of sanctioned individuals.
In order to avoid further delay, EU ambassadors agreed to remove Kirill from the list and advance the package forward.
Though ambassadors ultimately granted Hungary’s latest demands, they did not do so in stride — and are well aware of the poor optics at play. One EU ambassador who voted to remove Kirill’s name characterized the demands as “awful,” dubbing them Hungary’s “hostage policy.”
US GAS PRICES NEARLY DOUBLED SINCE BIDEN TOOK OFFICE: Gas prices reached a national average of $4.72 per gallon today, climbing to yet another record high and representing a nearly twofold increase since Biden took office.
On his Inauguration Day, prices stood at just $2.39 per gallon, according to AAA. The sharp rise in fuel prices also comes at the start of summer driving season, which is expected to drive prices even higher. Most analysts predict consumers will pay more than $5 a gallon this summer, and JPMorgan analysts forecast the national average could climb as high as $6.20 per gallon by August.
Speaking at the White House yesterday, Biden said there is little his administration can do in the short term to alleviate the spike in fuel prices, which he acknowledged are unlikely to fall anytime soon.
“The idea we’re going to be able to, you know, click a switch and bring down the cost of gasoline is not likely in the near term, nor is it with regard to food,” Biden told reporters, speaking after an event with baby formula manufacturers. Read more from Breanne here.
‘UNPRECEDENTED’ WATER RESTRICTIONS TAKE EFFECT IN SOCAL AS REGION BRACES FOR MORE EXTREME DROUGHT: New water restrictions took effect in Southern California yesterday for more than 6 million residents. The restrictions are part of a new “unprecedented” water conservation plan, which comes as the area braces for its third consecutive year of extreme drought conditions.
The restrictions aim to reduce water usage in the region by 35%. Under the rules, most residents will be required to limit outdoor water use to just once per week, though officials warned that additional cuts might come in September if conditions have not improved by then. Residents who fail to comply will first get slapped with a warning and then face increasing fines for each subsequent violation, officials said.
The new plan also comes as more than 97% of California is considered to be under conditions of severe, extreme, or “exceptional” drought, according to the U.S. Drought Monitor.
The water shortage also poses a threat to California’s hydroelectric power generation, which the Energy Information Administration warned this week could drop by 48% this summer compared to a year with more normal water conditions.
AN APPETITE FOR CANADIAN GAS: Bullish domestic demand and high prices drove a significant year-over-year rise in Canadian natural gas imports last month, according to a new market report from the American Gas Association.
Imports averaged 5 billion cubic feet per day in May, a 16% increase compared to last May.
The natural gas market has not been spared from the price increases affecting other energy commodities. Nymex natural gas futures closed at $8.70 per MMBtu yesterday, among the highest since 2008.
The Rundown
Bloomberg China’s climate goals hinge on a $440 billion nuclear buildout
Washington Post A summer of blackouts? Wheezing power grid leaves states at risk
Yahoo News Climate change could spell the end for Midwestern corn, study finds
Calendar
WEDNESDAY | JUNE 8
10:00 a.m. 406 Dirksen The Senate Environment and Public Works Committee will consider the nominations of Annie Caputo and Bradley R. Crowell to be members of the Nuclear Regulatory Commission.
10:00 a.m. 2318 Rayburn The House Science, Space, and Technology Committee will hold a hearing on detecting and quantifying methane emissions from the oil and gas sector.
