We are into a new week of potentially significant oil market moves. While Americans were observing Memorial Day, and the unofficial arrival of summer, the oil price was pushing past $120 per barrel.
Reportedly, high gasoline prices were not reflected in a discernible drop in road trips, but it would be a stretch to think that American motorists are not bothered by the prices at the pump and/or feel rich enough not to care. Multiple factors go into the oil price, and it would be rash to think the trend is not likely to be upwards.
Part of the significance of the coming days is the occurrence of significant important meetings. Last week the energy and environment ministers of the G7 nations (the Western industrialized nations) met in Germany and recommended that “OPEC pump more.” This week, on June 2 and 3, OPEC will be meeting along with the Russia-led OPEC+ group. Their definition of pumping more is a pre-agreed paltry 400,000 or so barrels a day.
That’s not enough to have much, if any, impact on prices. OPEC likely will argue that the market does not need more. That’s not surprising because OPEC members rather like $120-per-barrel oil. And OPEC’s leader, Saudi Arabia, no longer thinks it has an arrangement with the U.S. to pump oil in return for American security. Despite yet another trip to Riyadh by the administration’s Middle East point man, Brett McGurk, and his energy sidekick, Amos Hochstein, de facto Saudi leader Crown Prince Mohammed bin Salman, aka MbS, seems determined not to be obliging to Washington.
But that’s another factor that could change. Biden administration officials are working on a Middle East trip for the president, which would end this stalemate, despite White House antipathy toward the entrenched positions of MbS and others. Will MbS compromise on oil production in return for President Biden’s handshake and recognition that he is the real power behind the ailing King Salman’s throne? Don’t hold your breath, but the increasing suggestion that Saudi Arabia and Israel may be on the cusp of what would be truly a historic mutual recognition might shift entrenched positions.
Two factors loom over the meetings of the next few days: Ukraine and Iran. Russian President Vladimir Putin may well judge that he is close to a tactical, if not strategic, victory in the Donbas. A consequence of this would be to bluster his way out of attempts by Europe to squeeze him on energy. And Iran seems as determined as ever not to agree to a reimposition of restriction on its nuclear program.
This analysis does not allow for the unexpected, but there has been that as well, with the detention by Iran of two Greek-owned tankers in the Gulf in retaliation for the U.S. Navy seizing a Russian tanker loaded with Iranian oil near Greece. Such an outcome of the action again Iran was eminently predictable but muddies the waters of higher-level diplomatic talks.
Probably the most significant calculation in the mind of the White House in resolving this conundrum will be the potential impact on President Biden’s fortunes in the November midterms. Predicting this is arguably just too complicated. There are too many moving parts. The next opinion polls will be interesting to assess.
June is shaping up to be a potentially very significant month, in terms of Washington’s role in the world and the world’s perceptions of Washington.
Simon Henderson is the Baker Fellow and director of the Bernstein Program on Gulf and Energy Policy at the Washington Institute for Near East Policy. Follow him on Twitter @shendersongulf.