Biden presses Saudi leaders to act through OPEC+ to increase oil supply in coming weeks

The US does not expect to secure any oil supply commitments during President Joe Biden's visit to Saudi Arabia, but he will press the kingdom to act through OPEC+ in the coming weeks, National Security Advisor Jake Sullivan said July 15.

All eyes in the market will now shift to the next OPEC+ meeting, scheduled for Aug. 3, when ministers will formally set September production levels.

Sullivan said the White House is "hopeful that we will see additional actions by OPEC+ in the coming weeks."

"We believe any further action taken to ensure that there is sufficient energy to protect the health of the global economy will be done in the context of OPEC+," Sullivan told reporters traveling from Tel Aviv to Jeddah.

The current OPEC+ agreement holds the group's August quotas in place through the end of the year. Saudi Arabia will be obliged to hold its output at 11 million b/d, about 1 million b/d shy of its stated production capacity, while the UAE's quota will be 3.17 million b/d, about 830,000 b/d below its claimed capacity.

Those two countries are the only OPEC+ members with any significant ability to raise production.

Gulf meetings

Biden is set to meet July 15 with Saudi King Salman and Crown Prince Mohammed bin Salman. On July 16, he will attend the Gulf Cooperation Council summit and have bilateral meetings with the leaders of the UAE, Iraq and Egypt.

Asked if Biden would raise the issue of Saudi Arabia's cooperation with Russia on oil supply and trade flows, Sullivan would only say he aimed to have a "broad conversation about energy security."

Biden is under pressure at home from high fuel prices and 9% inflation, although US gasoline prices have eased over the past month.

As oil prices surged following Russia's invasion of Ukraine and the rapid escalation of Western sanctions, Biden pressed Saudi Arabia to speed up production hikes, but OPEC+ stood firm.

Tensions between the US and Saudi Arabia eased when OPEC+ agreed June 2 to accelerate production hikes through the summer. The group's quotas will rise by 648,000 b/d for August, but it remains to be seen how much crude members will be able and willing to pump in the months ahead.

Tricky balance

Any changes to the OPEC+ pact would have to be ratified unanimously by all 23 members of the alliance, and Saudi and Emirati officials have said they will not unilaterally hike output without the group's consensus.

With every other member either already pumping at maximum levels or hampered by western sanctions, Saudi Arabia and the UAE will have to tread a fine line between opening their taps to meet potential incremental demand and assuring their OPEC+ counterparts, including Russia, whom they are keen to keep in the fold for future supply management cooperation, that they are not making a market share grab.

Two OPEC+ delegates told S&P Global Commodity Insights on condition of anonymity that neither the Saudis nor Emiratis have briefed the rest of the group on potential oil outcomes from the summit with Biden.

"We are cautiously waiting," one said.

Oil security risks

Beyond oil supplies, Biden's agenda for his visit also included talks on regional security, including the Saudi-Iranian proxy war in Yemen that has seen multiple attacks on Saudi and UAE oil and shipping infrastructure launched by Tehran-backed Houthi rebels in recent years.

Following a spate of such incidents in March, the Saudi Ministry of Foreign Affairs said the kingdom would "not be responsible for any shortage in oil supplies to global markets in light of the attacks on its oil facilities."

Gulf officials have been dismayed by what they see as the US' disengagement from the region, such as Biden's withdrawal of Patriot missile systems from Saudi Arabia in 2021.

Saudi leaders are seeking "strong clear recognition for the critical role Saudi Arabia maintains, along with other GCC countries, in shouldering the responsibility of global energy security [and] expect the US to be an effective military partner in facilitating this mission by committing to the security of GCC nations," said Faiza al-Husseini, vice president of consultancy Husseini Energy.

The S&P Global Energy Security Sentinel has tracked 21 publicly reported attacks directed at oil installations in the Middle East, including refineries, storage farms, processing plants and producing fields, through the first half of 2022, compared with 19 in the same period a year earlier.