Just ahead of OPEC’s next virtual meeting, President Joe Biden cast blame at Russia and OPEC for the current state of high oil prices. He said “If you take a look at gas prices and you take a look at oil prices that’s a consequence of thus far the refusal of Russia or the OPEC nations to pump more oil.”
Javier Blas, Chief Energy Correspondent at Bloomberg News, posted video of Biden’s statement on Twitter.
Two days ahead of the OPEC+ virtual meeting, US President Joe Biden is pointing fingers: "If you take a look at gas prices and you take a look at oil prices that's a consequence of thus far the refusal of Russia or the OPEC nations to pump more oil" #OOTT pic.twitter.com/k4N5g8NQbO— Javier Blas (@JavierBlas) November 2, 2021
Let’s be clear on a couple of things. First, a fundamental reason oil prices have surged over the last year is that U.S. oil production declined by 3 million barrels per day (BPD) during the pandemic. That decline was exacerbated by a price war between Russia and Saudi Arabia just ahead of the pandemic, but then the pandemic crushed demand (and oil prices).
In response to the collapse in prices, last summer U.S. oil production fell by 3 million BPD — the largest short-term decline ever recorded. Demand started to come back in summer, and by fall demand was recovering faster than supply in the U.S. Our crude oil imports began to climb, and along with that so did the price of crude oil and oil products.
One could make the alternative argument that rising gas prices are from the refusal of U.S. producers to increase production. However, it’s more complex than that. During the pandemic, some producers went out of business. Some low-production stripper wells were certainly shut down. That’s production that won’t come back easily. (And some of those factors also impact production from Russia and OPEC).
But here’s the thing. Whether you think it was the right thing to do, the reality is that passing legislation that is hostile to the U.S. oil and gas industry makes it even more difficult for domestic production to bounce back. So, instead of asking Russia and OPEC to pump more oil, we could look internally to what we could do in the U.S. to pump more oil. I highlighted the risks of President Biden’s energy policies earlier in the year, because this is the sort of situation that can arise (not that this is the primary cause of this crisis, but it could be the cause of a future crisis).
OPEC and Russia have some spare capacity, but they may be reluctant to use it to help Americans out with lower fuel prices. The International Energy Agency (IEA) recently estimated that OPEC+ spare capacity (primarily OPEC plus Russia) was 9 million BPD in the first quarter of 2021, but it sees that potentially falling below 4 million barrels BPD by the fourth quarter of 2022.
It is certainly in Russia’s and OPEC’s self-interest to keep prices high. They are under no obligation to boost output to give us relief in the U.S. We can pressure them and dangle incentives, but this situation didn’t arise from their refusal to pump more oil.
Nevertheless, they could probably do so if they wanted and give us some relief. Think of it like a doctor responding to a distress call on an airplane. They didn’t cause the problem, but they may be in a position to assist.