Biden Set to Leave Saudi Arabia Without New Oil Production Announcement
On Friday, oil prices rose on news that President Joe Biden would not be making any public announcements about oil supplies after his trip to Saudi Arabia.
After a news report stated that the United States does not anticipate Saudi Arabia to immediately increase production while President Joe Biden is visiting the kingdom, oil futures rallied on Friday. Still, they remained on track for significant losses for the week. This was in response to the news that the United States is not expecting Saudi Arabia to increase production immediately.
Brent oil, which is used as the international benchmark, increased by 2.07 percent and is now trading above $101 per barrel. In comparison, West Texas rose by 1.70 percent and is now selling for $97.54 per barrel.
WTI crude, which is traded in New York, reached a settlement price of $95.78 a barrel on Thursday after falling to a low of $90.58 earlier in the day. This marked the price's lowest point since February 22, which was five days before the invasion of Ukraine.
After reaching a low of $94.52 per barrel on the London market, the price of Brent crude eventually closed at $99.10 per barrel.
More crucially, WTI has already fallen more than 20 percent from its top price of $123.68 on June 14, putting it in a position that would be considered to be a bear market.
When we compare Brent's present price to its peak on March 7, which was about $140, we see that it is in a situation not dissimilar to the one we are in now.
Crown Prince Mohammed Bin Salam, the de facto leader of Saudi Arabia, is scheduled to meet with President Joe Biden on Friday. Then Biden is scheduled to meet with other leaders from the Persian Gulf on Saturday.
According to Bloomberg, it is not apparent that there will be any new developments for Biden to disclose following the trip regarding updates on energy supply. This is because it is unlikely that there will be many new discoveries.
OPEC+ members, including Saudi Arabia, are still dealing with production limitations due to the pandemic, and there are roadblocks to increasing supply levels.
In addition, for a member nation of OPEC+ to raise its output above the current quotas, the other member nations need to give their unanimous approval.
During this time, investors are responding to signs that economies worldwide will experience a downturn.
The possibility of a recession in the United States has raised concerns about a decline in gasoline demand, which has put downward pressure on oil prices.
The benchmark for U.S. crude has dropped by almost 8 percent throughout the course of this week.
The situation is not improving on a global scale.
As a result of restrictions imposed on Russia's energy supplies, the European Union is currently dealing with its own energy crisis, which can potentially push the bloc's economy into a deep recession.
Both WTI and Brent fell below the $100-per-barrel threshold on Thursday, with the U.S. benchmark on Thursday temporarily erasing all of the rise seen following Russia's invasion of Ukraine on February 24. Rising fears of a recession have been blamed for the sharp decline in crude prices, which saw both WTI and Brent fall below the threshold.
According to a report by Reuters, which cited an official from the United States, Washington does not anticipate an immediate increase in production from Saudi Arabia. Instead, expectations are centered around a meeting of OPEC+ on August 3, comprised of the Organization of Petroleum Exporting Countries and their allies.
It is expected that President Biden will arrive in Jeddah on Friday. His discussions with Saudi authorities, particularly Crown Prince Mohammed bin Salman, the nation's de facto ruler, are seen as an effort to repair the relationship between the United States and the kingdom.
During his run for the presidency in 2020, Biden committed to approaching Saudi Arabia in the same manner as a pariah state.
The White House approved the publication of an intelligence report in February 2021, which stated that the crown prince was responsible for ordering the operation that resulted in the death of journalist Jamal Khashoggi in 2018.
Martin Indyk, a former diplomat who served in the Clinton and Obama administrations, was quoted as saying that while exact amounts were uncertain, it was expected that the Saudis would increase production by around 750,000 barrels a day, with the United Arab Emirates boosting output by 500,000 barrels a day for a combined 1.25 million barrels a day. This information was reported by The New York Times on Thursday.
It is believed that Saudi Arabia and the United Arab Emirates are the only members of OPEC+ who have the spare capacity available to increase output meaningfully; however, analysts have questioned whether or not these two countries would be willing to draw into their output cushion significantly.
President Biden is also expected to ask Saudi Arabia to ship more oil to Europe on Friday to replace Russian supplies.
By doing so, the U.S. would contribute to the advancement of its plan to cap the prices at which Russian crude is exported, a move designed to reduce the Kremlin's oil income without reducing the volume of oil exported.
The G7 countries agreed last month to begin investigating the feasibility of implementing the idea, which could work in tandem with the E.U.'s plan to stop insuring ships loading crude from Russia beginning in December.
If importers purchased Russian oil at a lower price, they would be exempt from the insurance ban that prohibits such purchases and could continue to purchase oil from Russia.
On Wednesday, President Joe Biden revisited the idea, claiming that a price cap was another way to reduce higher fuel costs, which he blamed on "Putin's price hike."
Western policymakers must also brace themselves for the Russian retaliation. This could involve Moscow refusing to reopen the Nord Stream 1 gas pipeline to Germany, which was recently closed for maintenance. Russia has already interrupted supplies through a pipeline from Kazakhstan.
As we reported yesterday, JP Morgan issued a dire warning about the global economy's impending collapse. Despite this, the news received little attention outside of the financial press. It has been speculated that if Russia suddenly stopped exporting oil, the world economy would suffer a severe blow, potentially leading to a fourfold increase in the price of oil to around $400 per barrel.