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Market News Biden's visit to Saudi Arabia has "big thunder and little rain", and the problem of high oil prices is still difficult to solve

Biden's visit to Saudi Arabia has "big thunder and little rain", and the problem of high oil prices is still difficult to solve

Some observers said they hoped President Biden's trip to Saudi Arabia would spur more production and lower oil prices. In fact, there is no quick fix for the current oil problem, and while new supplies from Saudi Arabia may prevent further spikes in oil prices, they will remain high. There is significant domestic resistance to any thaw in relations with Saudi Arabia due to Khashoggi's murder, making any visit a difficult political decision.

2022-06-09
8801
When news of U.S. President Joe Biden's planned trip to the Middle East, including Saudi Arabia, broke last week, many industry observers saw it as a sign of a "thaw" in relations between Washington and Riyadh. They also see the prospect of lower oil prices. After all, the purpose of Biden's trip is to lower oil prices. Unfortunately, things are never that simple. A trip to Saudi Arabia would convince them to open the oil valve and push oil prices down, which is a good idea, but the reality is that prices may not go down for a long time .

On Friday, Goldman Sachs head of energy analysis Damien Courvalin dashed hopes of a quick solution to the world's and U.S. oil problems. The oil market has been in structural shortages for years, and while a Saudi increase in production may stop prices from surging further in the short term, it is not a sustainable solution, he said.



OPEC+'s decision to add more barrels to the monthly output increase is another example of how limited OPEC's control over oil prices is right now . OPEC+ initially planned to produce just over 400,000 bpd, but last week agreed to boost output to nearly 650,000 bpd. The decision was applauded by some observers, but others were quick to point out that promising to do something is not the same as actually doing it. For example, the Financial Times quoted Rapidan energy group this week as saying that OPEC+ would struggle to deliver a 648,000 bpd increase in production in July and August. A more realistic figure is 355,000 bpd, according to the consultancy.

It is no secret that some OPEC members have had problems producing oil under the original OEC+ agreement. In April, those problems caused OPEC to produce 2.7 million barrels a day less than expected.

However, the fact that OPEC production has received far less attention than President Biden's visit to Saudi Arabia, which has not been officially confirmed and arranged. Now, there are only plans. The plans have already been criticized. House Intelligence Committee Chairman Adam Schiff said over the weekend that if he were Biden, he wouldn't go to Saudi Arabia, noting: "I wouldn't go, I wouldn't shake hands with him, this guy slaughtered an American resident in the most horrific way , dismember him to pieces in the most premeditated way."

This suggests that the issues that divide the United States and Saudi Arabia remain, including Biden's threat to Saudi Arabia over Khashoggi's killing, and Biden's olive branch may not please some voters too much. The question, of course, is whether these voters aren't just those unhappy with the Biden administration's energy policies. The Biden administration's energy policies have pushed retail fuel prices to their highest levels in years and, in some parts of the United States, to record levels.

White House press secretary Karine Jean-Pierre said last week: “His visit to Israel and Saudi Arabia comes in the context of significant results for the American people in the Middle East.” He added: It's in America's interest to engage, and that engagement produces results, then he will do it."

It's not particularly specific in terms of plans to lower oil prices, but it does address the underlying issues that Schiff mentioned. The problem is that with the structural deficit on his hands, no amount of repairing the relationship with the Saudis will help .

Goldman's Courvalin said global oil supplies are tight due to geopolitical factors, and that's likely to persist. He pointed to EU sanctions targeting Russia's oil industry, Libya's continued efforts to keep its production uninterrupted, and negotiations with Iran that have once again "returned fruitless".

Basically, it all means that no matter what the US president or any other world leader does, oil prices are most likely to stay high. In fact, it could go even higher . The latest to warn economic chiefs is Jeremy Weir of Trafigura.

Speaking at a Financial Times event this week, the commodities trader's chief executive said: "We're facing a tough situation. I really think we're going to have a problem for the next six months... Once oil prices go into a parabolic state, the market is volatile and spikes dramatically.”

As Rapidan Energy Group's Bob McNally told the FT, OPEC+'s decision to raise output beyond what was initially agreed is seen by some Western analysts as a sign of a "change of attitude" by Saudi Arabia.

Interestingly, the Saudis didn't comment much on the White House's planned Biden visit. The latest news from the Saudi side is that a lawmaker said Biden's visit was delayed until July in order for the United States to meet all Saudi demands first. One has to wonder how far Washington is willing to go in order to lower oil prices, even if there is no guarantee that it will succeed.



Brent Crude Oil Daily Chart

GMT+8 at 13:29 on June 9, Brent crude oil continuously reported $124.06/barrel

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