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Biden’s fist pump leads to miniscule OPEC+ production increase

Photo from President Biden's visit to UConn.

By Randeep Somel, manager of the M&G Climate Solutions Fund

With Democrats struggling with inflation at home and midterm elections due in November, President Biden arrived in Saudi Arabia in July hoping to mend relations with the world’s most important swing producer when it comes to the production of oil. 

A very public fist-pump between the two leaders suggested relations were thawing and Biden may be successful in convincing Saudi Arabia to produce more oil as the world struggles with climbing prices following the Russian sanctions.

OPEC and its allies today announced they will lift supply by just 100,000 barrels a day for September delivery.  This is a tiny fraction of the group’s overall production and a far smaller increase than it has added in recent months, previously adding 648,000 barrels a day for August production.  Globally we consume c. 100m barrels of oil per day.

With manufacturing and consumer confidence data showing weaker signs across the world, delegates said they are concerned by the threat to demand from a potential recession in the US and Covid-19 lockdowns in China.

It doesn’t look as if higher oil prices are going to be resolved by a supply response. The key factor now will be how resilient the global economy can be with higher oil prices and if inflation can be tamed despite energy prices remaining high.  Otherwise the only option central banks will have is to raise interest rates in order to curtail demand.

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