Last week, there was news that President Biden was planning a visit to the Middle East, which would include Saudi Arabia. Many industry analysts saw signs of "thawing" relations between Washington and Riyadh.
They also saw the prospect of lower oil prices. It was, after all, to lower prices that Biden was planning this visit. Unfortunately, things are never that simple.
On Friday, Goldman Sachs' head of energy analysis Damien Courvalin, speaking to CNBC, quashed hopes for a quick fix to the world's and the United States' oil problem. According to Courvalin, the market is in a structural deficit that has been years in the making. While some additional Saudi barrels could prevent a further spike in the immediate term, they are not a sustainable solution to the problem.
The OPEC+ decision to add more barrels to its monthly production increase is another example of just how little power OPEC has over oil prices currently. Initially planned at a little over 400,000 bpd, OPEC+ last week agreed to boost this to almost 650,000 bpd.
The decision was praised by some observers. However, others pointed out that promising to do something is not the same as actually doing it. The Financial Times quoted Rapidan Energy Group as saying that OPEC+ was unlikely to achieve a full production increase of 648,000 bpd in July and August. A more realistic figure, according to the consultant, is 355,000 bpd.The problems of some OPEC members to produce oil within the volume envisaged by the original OPEC+ deal have long been known. In April, they resulted in OPEC producing 2.7 million barrels per day less than anticipated.
Yet this fact about OPEC production is not getting anywhere near as much attention as President Biden's visit to Saudi Arabia, which has yet to be officially confirmed and scheduled. For now, there are just plans, which are already being criticized.The chair of the House intelligence committee, Adam Schiff says that if he were Biden, he wouldn't go to Saudi Arabia. The problem is that, with a structural deficit on his hands, no amount of fence-mending with Saudi Arabia would help.
Global oil supply is tight and likely to remain so because of geopolitical factors, according to Goldman's Courvalin. He noted the EU sanctions against Russia targeting its oil industry, Libya's continued struggle to keep its production uninterrupted, and the fact that Iranian negotiations are, once again, "going nowhere."
In fact, no matter what the US president or any other world leader does, oil prices are most likely to remain elevated. In fact, they might still go higher.
The latest from the Saudi side was a lawmaker's comment that Biden's visit has been postponed until July in order for Washington to meet all Saudi demands first.
