What US longing for low oil prices means for Nigeria, OPEC

OPEC's data showed Nigeria's rig count declined further in December 2021 to six from seven recorded in November 2021

Nigeria and some of the biggest oil-producing countries face an emerging hurdle as President Joe Biden’s administration campaigns both home and abroad to address concerns about rising crude oil prices slowing the United States’ recovery from the pandemic-induced recession.

This week, the US has called on the Organisation of Petroleum Exporting Countries (OPEC) to boost oil production in an effort to curb high petrol prices that members of President Joe Biden administration say “risk harming the ongoing global recovery”.

US crude prices hit $76.98 a barrel Thursday, a level unseen since November 2014, before retreating to around $73.50. Gasoline prices, which move with a lag to crude, ticked up to a national average of $3.19 a gallon on Thursday, according to American Automobile Association (AAA).

That’s up from just $2.18 a year ago when the pandemic was still roaring.

Jake Sullivan, the US’s national security adviser, said in a statement on Wednesday that while OPEC and its allies had “recently agreed to production increases”, the additional output would “not fully offset previous production cuts that OPEC+ imposed during the pandemic until well into 2022”.

“At a critical moment in the global recovery, this is simply not enough,” added Sullivan, saying that the US was “engaging with relevant Opec+ members on the importance of competitive markets in setting prices”.

Until now, the Biden administration has taken a hands-off approach with OPEC, in stark contrast with former President Trump, who famously was obsessed with tracking financial markets and repeatedly blasted OPEC for failing to pump enough oil.

Implication for the oil market

The oil industry and its allies criticised Biden’s request as inconsistent with his actions to restrain domestic fossil fuel production, such as an attempted pause on federal oil and gas lease sales.

“Begging the Saudis to increase production while the White House ties one hand behind the backs of American energy companies is pathetic and embarrassing,” said John Cornyn, a Republican senator from Texas tweeted on Thursday.

Oil prices fell sharply last year as the pandemic brought major economies around the world to a standstill.

But they have rebounded strongly as countries have reopened, with benchmark Brent crude trading at just under $70 a barrel on Wednesday – up nearly a third since the start of the year.

“The oil group is no stranger to the White House trying to interfere in its decision-making process, with President Trump a constant critic of them during his term,” said Craig Erlam, a senior market analyst at Oanda, in a note.

“How that will go down in the group is another thing. Some will be more than happy to increase production faster while others may be more reluctant after a prolonged period of very low prices.”

Other analysts claimed the President Biden team appeared to be caught flat-footed by the drama OPEC.

“They are playing catch-up,” said Helima Croft, global head of commodity strategy at RBC Capital Markets. “The early warning system for the Biden administration was not commensurate with that of the Trump administration. They may not have realized how potentially consequential that OPEC meeting was.”