As oil races toward $100, India, US and Japan tell OPEC+ enough is enough

For the past year, oil consuming countries have become increasingly anxious at crude’s resurgence: first to $50 a barrel, then $75 and now to more than $85. And when Vladimir Putin, one of the leaders of the OPEC+ cartel, warned that $100 a barrel was a distinct possibility, the alarm bells really started ringing.
 

Now, as quickening inflation pushes some central banks toward earlier-than-expected interest rate hikes, the U.S. India, Japan and other consuming countries are putting the strongest diplomatic pressure on the cartel in years.

Behind closed doors, an intense campaign is being waged to persuade OPEC+ to speed up its output increases, according to multiple diplomats and industry insiders involved in the contacts. The cartel, which meets virtually on Nov. 4 to review policy, is currently boosting output at a rate of 400,000 barrels a day each month. 

The private efforts come on top of recent public appeals. The Biden administration is increasingly alarmed by rising gasoline prices that have reached a 7-year high, and has been calling on OPEC+ for weeks to pump more oil. Japan, the world’s fourth-largest oil consumer, took the rare step of adding its voice to those calls in late October -- a first for Tokyo since 2008. India, the third-largest consumer, has also asked for more crude. China has been silent in public, but is equally vocal in private, diplomats said. 

“We found ourselves in an energy crisis,” Amos Hochstein, the top U.S. energy diplomat, said this week, reflecting a view broadly held view by big oil consuming nations. “Producers should ensure that oil markets and gas markets are balanced.”

Graph

U.S., Japanese and Indian officials have spoken privately among themselves and also reached out to other big consumers and oil-producing countries. The calls started around three weeks ago, but have intensified in recent days after prices passed $85 a barrel. 

The Japanese “government is currently asking oil-producing countries to increase production in the Middle East,” according to Tsutomu Sugimori, chairman of the Petroleum Association of Japan. “As the petroleum industry, we hope oil-producing countries, including OPEC, will take appropriate steps so as not to hinder a full-fledged recovery of the world’s economy.”

So far, Saudi Arabia and others have refused to go quicker, arguing the monthly 400,000 barrel-a-day additions are enough to satisfy the appetite for oil in a global economy still nursing the wounds of the pandemic. 

“We are not yet out of the woods,” Saudi Energy Minister Prince Abdulaziz bin Salman said on Bloomberg Television last week. “We need to be careful. The crisis is contained but is not necessarily over.”

The prince’s comments were echoed in private and public by others within the OPEC+, an alliance of countries accounting for nearly two-thirds of the world’s oil supply. Azerbaijan Energy Minister Parviz Shahbazov said for example there wasn’t a need to rush faster output increases. “We have agreed on a very wise and smart program for months to come,” he said. 

Saudi Arabia will probably get its way if it pushes to stick with a 400,000 barrel-a-day hike next. For many OPEC+ officials they’re being made a scapegoat for a crisis they didn’t create. The problem, they argue, is not oil but soaring natural gas and coal prices, which in turn have boosted electricity prices. Even if the cartel was to go faster, that wouldn’t resolve those shortages, they said. 

Some in the group who would be open to doing more, however, if Saudi Arabia took the lead, several OPEC+ delegates said, asking not to be named before the meeting takes place. 

Shifting Mood
 

For most of this year oil-consuming nations accepted OPEC+ was doing enough. But after oil prices rose from $70 to more than $85 a barrel and crude inventories in industrialized countries declined sharply over the last couple of months, the mood has shifted. Now officials from consuming countries believe the oil market is under-supplied.

Many consuming countries were reluctant to call more openly for extra oil production just before a major UN climate change summit in Glasgow, Scotland, known as COP26. But even that perception problem is starting to fade. Jake Sullivan, the U.S. mational security advisor, explained that Washington could fight against climate change and ensure there’s enough energy to fuel economic growth in the immediate future.

“Our view is that the global recovery should not be imperiled by a mismatch between supply and demand,” Sullivan said on board Air Force One while en route to Rome for this week’s Group of 20 summit. “And action needs to be taken,” he said, revealing that American diplomats were in touch with “the largest consuming countries in the world to include China as well as India, Japan, Korea, the Europeans, and others.”

President Joe Biden “will have those conversations at the G-20,” Sullivan said. “We will see what comes as a result of those conversations.”