U.S. Oil Price Reversal in the Light of the OPEC Cut and the Saudi-Brazil Fist Bump
David A. Andelman, a CNN contributor and author of A Red Line in the Sand: Diplomacy, Strategy and the History of Wars that Might Still Happen is also a member of the French Legion of Honor. He was a correspondent for CBS News and the New York Times. The views expressed in this commentary are his own. CNN has more opinions.
So much for cozying up to the Saudis – President Joe Biden’s much-hyped fist bump with Mohammed bin Salman during a trip to the Middle East back in July has turned into something of a slap across the face from the crown prince.
The announcement by the Organization of the Petroleum Exporting Countries of an estimated 2 million barrels per day reduction is sparking a cascade of toxic geopolitics.
The EU is planning on capping Russian crude oil prices for its 27 member nations. This complex formula – designed to slash the revenues Putin can raise to pursue his war in Ukraine – would penalize any shipping line transporting Russian crude, withholding insurance for their cargo or vessels if the oil they are carrying is priced above the EU limit.
And if world oil prices do surge as a result of supply cutbacks, the ready source of Russian crude at cut-rate prices would be a boon to these countries’ economies.
Oil prices and revenues will be the most immediate effect. The price of gas and inflation in the United States on the eve of mid-term elections are being felt as a result of the reversal of the trend that saw oil prices plummet to an all-time low of $80 a barrel in March.
Oil monitor Platts pegged the crude price at $93.73 a barrel on October 4, up 11% from $84.63 on September 26, when rumors of an OPEC cut first began circulating. That is still considerably lower than the June 14 peak of $132.06 a barrel.
Morgan Stanley analysts lifted their estimates for oil prices to $100 a barrel hours after the OPEC announcement. Gas prices will inevitably increase as a result of any reversal.
European customers may be worse off since oil prices in other oil-produced nations could go up sharply with supply cutbacks.
The US has begun looking at other sources of crude to make up for the shortfall. The Wall Street Journal reported the Biden administration could be prepared to scale down sanctions on Venezuela and allow Chevron to begin exporting again from the country to the US, with some political conditions such as President Nicolás Maduro opening talks with opposition leaders.
This would have little immediate impact but could eventually be part of a broader pattern of shifting the world’s oil imports away from Russia. Indeed at its height in the 1970s, Venezuela was producing 3.8 million barrels per day, according to Forbes. The figure was down to 723,000 barrels in August.
European countries have stopped using Russian gas because of the invasion of Ukranian. (In early September Russia cut off gas supplies to Europe through the Nord Stream 1 pipeline indefinitely, citing an oil leak).
Already, countries like Germany, France and the United Kingdom are either restarting or considering a return to coal plants – one of the most polluting fuels – to help plug gas shortages. OPEC cutbacks and price increases could only accelerate this environmentally dangerous trend.
World leaders need to fight back: The case for resiliency of climate change in the wake of the Saudi Arabian crisis and the United Arab Emirates
Clearly, the Saudis have thrown down a gauntlet alongside one that has long been on the table from Russia. The US needs to fight back. I’ve been visiting the kingdom for decades and have seen its leaders respect one trait from their enemies and allies: strength and willingness to hold to their convictions.
The congressman told CNN that he wants the Biden administration to stop the sale of aviation parts, and to prevent companies like Boeing from selling to Saudi Arabia. Both of them supply weapons to Saudi Arabia.
And Rep. Tom Malinowski told Politico Playbook this week that he will introduce legislation to “mandate the removal of US troops and missile defense systems” from Saudi Arabia and the United Arab Emirates. The GOP-sponsored bill from 2020 makes it hard for Republicans to vote no.
The new data was released as world leaders were gathered at the conference in Egypt. Negotiations are underway to rein in warming to 1.5 degrees Celsius (2.8 degrees Fahrenheit) by the end of the century. The world could see a lot of destructive storms and flooding after that level.
Rob Jackson, the climate scientist atSTANFORD UNIVERSITY who worked on the report, says that we’re close to the 1.5 Celsius threshold.
Jackson says it’s difficult to say how emissions will rebound from war and inflation. It appears that the world hasn’t turned the corner on reducing fossil fuel emissions.
The rapid rise in the prices of natural gas and other fuels has led to some countries and regions turning to coal as a cheaper alternative.
Many countries were scrambling to replace natural gas supplies coming from Russia with supplies from other countries. Natural gas that is exported overseas must be super- cooled into liquified natural gas before it can be loaded on ships. Once the ships arrive at their destination, the gas has to be unloaded at special facilities, known as LNG terminals. According to a new report from Climate Action Tracker, a climate think tank, 26 new terminals have been announced in the European Union since the invasion of Ukraine.
The global climate crisis: a wake up call from Europe? Glen Peters, an expert on global carbon policies, argues that the EU hasn’t responded to the U-turn
“It’s a chaotic mess of a global economy and we really don’t yet know how emissions will settle out post-Covid because we haven’t had a normal year yet,” he says.
Glen Peters, a climate-policy researcher at the Center of International Climate Research in Oslo, who is part of the Global Carbon project says there are pathways forward with the energy system becoming cleaner each year. Peters says that the climate policies being implemented by governments are working, but that more needs to be done.
Coal is the most used energy source for electricity generation and the production of steel and cement. It contributes 40% of global greenhouse gas emissions from fossil fuel use.
Pieter de Pous, who leads the Fossil Fuel Transition Program at E3G, a climate think tank, told CNN the growth in coal use was a U-turn, coming “at the end of a decade that saw coal use cut in half.”
That has put the EU, which has positioned itself as a global climate leader, into an uncomfortable position, with some criticizing European countries like Germany for only pursuing the green agenda when it suits them. Germany and the EU have pushed back on that idea, stressing the U-turn was only temporary and that the bloc has significantly ramped up its investment into renewable energy.
The IEA stated that the coal power generation in China in August was at a higher level than any other country except India and the United States.
Climate Change and the End of the Millennia Cycle: A Critical Challenge for the World to Avoid Climate Change Beyond 1.5 Degrees Celsius
The latest climate science shows that achieving net zero by the mid-century is necessary to keep temperatures from rising well above 1.5 degrees Celsius, compared with pre-industrial times. Beyond that threshold, the world will face climate crisis impacts that could take millennia to correct, or could be irreversible altogether.