The OPEC oil cartel and allied producing countries including Russia will raise production by 648,000 barrels per day in July and August — roughly 50% — offering modest relief for a global economy suffering from soaring energy prices and the resulting inflation.
The deal will still keep Russia firmly in the cartel, while heeding pressure from major customers, including the United States.
The decision Thursday steps up the pace by the alliance, known as OPEC+, in restoring cuts made during the worst of the pandemic recession. The group had been adding a steady 432,000 barrels per day each month to gradually restore production cuts from 2020.
The move to increase production faster than planned comes as rising crude prices have pushed gasoline to a record high in the U.S. There are fears that elevated energy prices could slow the global economy as it emerges from the pandemic.
The increase did not appear to ease concerns about tight supply and oil prices actually rose after the decision was announced Thursday.
U.S. crude, which had fallen by as much as $3 per barrel early in the day, reversing course and traded up 0.9% at $116.23. International benchmark Brent rose 0.7% at $117.02. Market traders may have expected more from the meeting, such as an indication from de facto OPEC leader Saudi Arabia that it could make up for any shortfall due to sanctions against Russia.
Instead the alliance's statement merely mentioned reopening from COVID-19 lockdowns in “major global economic centers” and the end of seasonal maintenance work at refineries as justifications for the incremental increase. Lockdowns in Shanghai and Beijing have sapped fuel demand in China.
OPEC+ decisions have been complicated by the group’s failure to meet its production targets due to underinvestment and other roadblocks in some member countries. Actual production has lagged the scheduled increases.
OPEC, whose de facto leader is Saudi Arabia, has resisted pleas from the White House to increase oil supply to make up for production lost due to sanctions against Russia after its invasion of Ukraine.
That, along with a European Union agreement to end most oil imports from Russia, has pushed prices higher. Gasoline and diesel prices have also been rising due to a lack of refining capacity to turn crude into motor fuel.
In the U.S., crude prices are up 54% since the beginning of the year and gasoline prices are being pulled along.
The U.S. saw a record high average gasoline pump price on Thursday of $4.71 per gallon, according to AAA. The price of crude makes up about half the price of gasoline at the pump in the U.S., and prices could go even higher as the summer driving season gets under way. High gas prices for drivers are a potential factor in U.S. politics with mid-term Congressional elections approaching later this year.
In Germany, the government has sought to soften the blow to consumer finances from energy inflation by launching deeply discounted transit passes that enable unlimited use of local trains, subways and buses for 9 euros ($10) per month.
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