OPEC+ to Meet to Discuss Oil Production Quotas for September

OPEC+ agreed Wednesday to a small increase in oil production quotas for September as the White House has called for a crude supply boost. U.S. crude oil prices cut early losses Wednesday even as demand concerns continue.

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The Organization of the Petroleum Exporting Countries and its allies, including Russia, decided Wednesday to approve an output increase of 100,000 barrels per day for September. The quota increase is equal to around 0.1% of global oil demand amid tight production capacity among OPEC+ members. OPEC+ is scheduled to meet again on September 5.

U.S. crude oil futures rose nearly 2% to $96 a barrel Wednesday. Prices had dropped nearly 5% Monday as investors awaited the OPEC+ meeting.

In early June, OPEC+ decided to increase output by 648,000 barrels per day for July and August, up from the previous quota of 432,000 bpd. The organization met again in late June to confirm August oil output even as world leaders urged oil giants to drum up supply amid inflation and recession fears.

However, many members have not been able to meet this production quota. Saudi Arabia, which leads OPEC, and the United Arab Emirates are the only countries that could meaningfully increase capacity but neither have shown a willingness to produce at maximum levels.

President Joe Biden urged Saudi Arabia and other major oil producing states to pump more oil during a visit to the Middle East in July.

The price of crude oil has angled sharply in 2022, reaching $130 per barrel in February, after Russia invaded Ukraine. Recently, inflation and fears of a demand-sapping recession have brought prices down somewhat. Crude oil prices are down well more than 20% from the June high.

OPEC+ Meeting During Earnings Season

The OPEC+ meeting takes place as energy giants Exxon Mobil (XOM), Chevron (CVX) and Shell (SHEL) all posted record profits last week. U.S. shale oil producers are announcing earnings this week.

Exxon Mobil stock dipped 0.4% to 94.07 in Tuesday’s market trading. Chevron edged down 0.85% to just above its 50-day moving average, while SHEL gained 0.7%.

Marathon Petroleum (MPC), Devon Energy (DVN) and Diamondback Energy (FANG) all beat earnings views ahead of more reports in the coming days.

Oil and gas companies have seen strong profits throughout 2022, buoyed by increased crude oil prices and the cost of gasoline at the pump. As a result, oil stocks have led the market’s upside by long strides for much of the year.

However, inflation and supply-chain shortages have caused oil and gas companies to increase capital spending even as production has mostly remained flat.

A report from the U.S. Energy Information Administration shows oil and gas companies downshifted both spending and production for the second quarter. An EIA scan of 53 public U.S. oil and gas companies found that capital spending nearly doubled vs. 2021. These same companies reported a 5% decline in capital expenditures in the second quarter vs. Q1 this year. Crude oil production has increased 10% compared with the first quarter, but it remains flat vs. Q4 2021.

How The Senate’s Climate Bill Affects Oil

Senate Democrats finally announced a deal last Wednesday on a broad spending bill, called the Inflation Reduction Act, that met Sen. Joe Manchin’s demands. Senate Majority Leader would like to vote on the bill this week.

The proposal would raise $739 billion in revenue, with the majority of that coming from a 15% corporate minimum tax.

The legislation would invest around $300 billion into deficit reduction measures, $369 billion into “energy security and climate change” and an additional $64 billion to extend health care subsidies for some Affordable Care Act participants.

The current proposal would also revive and increase a tax on crude and imported petroleum products to $16.4 per barrel. This tax would be paid by U.S. refineries receiving crude oil along with importers of petroleum products, according to Bloomberg.

The American Petroleum Institute, the oil and gas industry trade association, has stated this would be a $25 billion tax hike on the oil sector.

The legislation would also place additional costs on the oil and gas industry, including a methane emissions fee and royalty rates on oil and gas produced on federal land.

Manchin expects the legislation to including permit reform to speed up infrastructure project approval for fossil-fuel and green energy.

Please follow Kit Norton on Twitter @KitNorton for more coverage.

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