President Joe Biden is poised to ask oil-producing Gulf leaders to ramp up oil production when he visits Saudi Arabia. How much more can they produce and how much of a difference will it make?
RACHEL MARTIN, HOST:
With soaring inflation and high gas prices, President Biden has toned down his moral outrage over Saudi Arabia’s human rights record. Biden is in Saudi Arabia today where he is poised to ask oil-rich Gulf leaders there to keep pumping more oil, which would drive gas prices down here at home. For more, we turn to NPR’s Arezou Rezvani, who covers energy. Good morning, Arezou.
AREZOU REZVANI, BYLINE: Hey, Rachel.
MARTIN: What are the chances the Saudis are going to ramp up oil production?
REZVANI: So OPEC has increased its output in recent weeks, but more is still needed. And this would be a pretty big ask from Biden. Relations between the U.S. and the Saudis have been strained for quite a while now, and it wasn’t long ago that Biden vowed to make Saudi Arabia a global pariah for ordering the murder of journalist Jamal Khashoggi. Yet here we are a few years later, Americans are fed up with the high gas prices. Midterm elections are coming up and Biden is there to, yes, talk about regional security issues and also because the Saudis are the largest oil producer within OPEC. They have the power to sway prices. I talked to Helima Croft about this. She’s the global head of commodity strategy at RBC Capital Markets. She says the Saudis really have the most oil to spare at the moment, but even for them, there are limits.
HELIMA CROFT: Saudi Arabia is producing a little over 10 million barrels a day. Their sustainable capacity is 12 million. But do they want to max out their spare capacity? And the argument that they keep making is if we give you our remaining spare capacity, there will be no shock absorbers left in this market to deal with any future supply disruptions.
REZVANI: So disruptions could be another geopolitical crisis. She pointed to renewed unrest in Libya, another member of OPEC, as an example or a natural disaster. So even if OPEC does increase its production, it probably won’t be by much.
MARTIN: The oil market is dependent on so many things geopolitically, right? I mean, just explain what other forces are at play right now.
REZVANI: Well, the inflation around the world is driving fears of a global economic slowdown. That anxiety could put a lid on demand and keep oil prices from climbing. But then there’s the issue of Russia. The latest round of Russian sanctions haven’t kicked in yet. European countries that have depended on their oil imports will be cutting back soon. Limiting that oil in an already strained market, that could shoot prices back up. And also there’s no telling how Russian President Vladimir Putin will react or retaliate to the pressure. So there’s a lot still up in the air.
MARTIN: I mean, gas prices here have been so astronomically high, Arezou, but they have been dipping. Can you explain why?
REZVANI: So there are a combination of factors driving this. In China, COVID cases are on the rise again. The prospect of lockdowns is slowing down demand in that major market. Then here in the U.S., consumption has cooled a bit amid signs that the global economy is slowing. But analysts say this reprieve could be short lived as Western sanctions intensify on Russia later this year.
MARTIN: So what are the president’s options? If the Saudis say no, where else can he look? What are the other options to try to lower or stabilize gas prices?
REZVANI: Yeah, this is something that came up in a conversation I had with oil expert Daniel Yergin. He says the key to bringing down oil prices may not be in the Middle East but right here at home through the Fed and in ways that may not be very comforting to hear.
DANIEL YERGIN: Its objective is to fight inflation, but the collateral damage is economic growth, and a slowdown in the economy would reduce demand, and that would take some of the pressure off price.
REZVANI: So basically, it may take something as extreme and dramatic as slowing down the whole economy to get gas prices back under control.
MARTIN: NPR’s Arezou Rezvani. Thank you so much.
REZVANI: You’re welcome.
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