US members of Congress have once again started blaming OPEC for raising oil prices. In fact, Democratic Senator Chuck Schumer has asked President Donald Trump to send the secretary of energy to the OPEC conference in Vienna on June 22 to solve the issue of oil prices.
As usual, whenever there is even a slight rise in oil prices, the US starts blaming OPEC. Meanwhile, the US is the biggest consumption market and it produces enough oil for itself. This is in addition to the increase in American oil production, which the US discovered in recent years when oil prices increased. Large and small companies have thus rushed to explore more shale oil across the US.
In the late 90’s, then-US Energy Secretary Bill Richardson called then-OPEC’s president Abdullah Hamad al-Attiyah to reduce prices. The US now boasts of its oil independence, although it still imports a small amount of Saudi oilRanda Takieddine
The OPEC blame game
As the US tourism season kicks in leading to increased driving, the practice of blaming OPEC countries has resurfaced. Saudi Oil Minister Khalid al-Falih announced, with his Russian counterpart Alexander Novak, that an inventory surplus has been eliminated.
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They said that the 24 OPEC members and non-OPEC oil producing countries, which had reduced their production by 1.8 million barrels per day, might gradually reconsider this decision to compensate for Iranian and Venezuelan oil quantities that the market will lose due to US sanctions. As soon as this hint was made by Falih, the price of a barrel of oil in the US market fell by about $2 and Brent prices in the London market dropped by more than $1.
Falih and his Russian counterpart announced in St. Petersburg that OPEC members and non-OPEC producing countries can reconsider increasing production in the second quarter of the year.
This was done knowing that the OPEC monitoring committee recommended at its meeting on May 25 that reducing current oil production by 1.8 million barrels per day will be extended to the coming six months which means until the end of the year. This was OPEC’s last decision at its last conference in December last year.
At that time, the US had not yet decided to withdraw from Iran’s nuclear agreement, to reinstate sanctions on Iran and to impose sanctions on Venezuela.
When OPEC and non-OPEC producing countries reduced their production, oil prices and producers’ earnings improved but did not reach unacceptable levels. It was between $70 and $78 per barrel. It also did not reach the levels that would negatively impact world economy.
Still, the US has reverted to its old habit of blaming OPEC countries as even Republican Congress member Lisa Murkowski, who is the leader of the energy committee, said that OPEC's reduced production raised prices and this should be addressed.
OPEC’s history had witnessed several US interferences and blame of this kind. In the late 90’s, then-US Energy Secretary Bill Richardson called then-OPEC’s president Abdullah Hamad al-Attiyah to reduce prices. The US now boasts of its oil independence, although it still imports a small amount of Saudi oil. Thus the question is why the blame game?
The history of Saudi Arabia shows its continuous preservation of oil markets and global economy. OPEC did not and would not take any decisions except after thoroughly studying the market conditions and the situation of supply and demand.
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It reduced production in 2017 because the international market had a huge oil surplus that should have been eliminated. OPEC succeeded in doing that by involving 13 countries from outside it, most important of which is Russia, until oil prices improved after the price of the barrel had reached $30s.
In fact, if the 24 countries increased their production, this will be in line with the principle to meet the demand for oil and avoid shortage that might increase oil prices to $100 dollar per barrel.
This will also accelerate the cycle of shale oil production in the US to compete with the oil of other producers and return the surplus to what it was when oil prices fell significantly. Thus, the group of 24 should carefully consider the market conditions to evaluate which productions must be increased so the revenues of the producing countries do not decrease.
This article is also available in Arabic.
Randa Takieddine is a Lebanese writer and the director of Al-Hayat newspaper office in Paris.