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.
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“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.”
OPEC’s latest meeting ended in disarray after the UAE took issue with its baseline quota, briefly sending the oil market into turmoil. The group eventually came to an agreement later in July.
US’s producers also turned off the taps during the depths of the pandemic, and they’ve been slow to bring production back online.
According to the latest data from the Energy Information Administration, US production averaged 11.2 million bpd in May, down from the pre-pandemic high above 13 million.
Implication for the renewable industry
Biden’s push for lower fuel prices seemingly grates with his administration’s efforts to be a global leader in the fight against climate change.
“If Biden urges more output, that will upset environmentalists,” said Greg Valliere, chief US policy strategist at AGF Investments. “I don’t see an easy answer for Biden right now.”
So it may not be fair, but Republicans see an opening to attack Biden for promoting clean energy.
“As millions of Americans travel this holiday weekend, they are feeling the cost of Biden’s policies at the pump,” GOP Chairwoman Ronna McDaniel said in a tweet over the weekend.
Biden must balance his lofty climate ambitions with the difficult truth that the US economy — not to mention his reelection chances — still very much relies on fossil fuels.
“The hard politics of the energy transition are coming into plain sight,” said Croft. “No one said this would be easy.”
Implication for Nigeria
Africa’s biggest oil-producing country may miss out on an opportunity to improve its earnings despite a current quest by some major oil producers to supply more crude oil.
Normally, an increase in oil prices and output volume should help boost the external reserve positions of Africa’s biggest oil-producing country, shore up the nation’s foreign debt position, inadvertently strengthening the stability of the exchange rate.
However, the situation is different; Nigeria’s crude oil production has been languishing at only two-thirds of its full capacity this year as many of its large oil fields, especially those in the Niger Delta.
For instance, oil fields like Forcados, Bonny, Escravos, Brass River and Qua Iboe and some offshore fields like Bonga, Usan, EA, have been pumping much below their normal levels due to either technical or maintenance issues.
According to OPEC’s monthly report, Nigeria produced 1.3 million barrels per day (mbpd) in the second quarter of 2021 this compares negatively with the OPEC quota of 1.4 mbpd.
OPEC’s report noted that Nigeria has struggled to meet its production quota of 1.4 mbpd as oil production slipped to 1.372 mbpd, 1.344 mbpd and 1.313 mbpd, in April, May and June 2021 respectively.
