Is Biden’s Visit to KSA A Magic Wand Cooling Energy Prices?

US President Biden is using key political capital by meeting with Saudi Crown Prince Mohammed Bin Salman in an attempt to convince the Kingdom to stabilize global oil markets and ease prices for Americans at the gas pump.

Saudi Arabia’s position as the world’s second largest oil producer and unofficial head of the Organization for Petroleum Exporting Countries (OPEC), make it a key gatekeeper in helping to lower peak energy prices.

Announcement of the trip comes as the OPEC+, a group of major oil exporting nations that includes both Saudi Arabia and Russia, recently sped up its plans to increase oil supply as part of its efforts to offset pandemic-related supply cuts, from 432,000 barrels per day previously to 648,000 barrels per day for July and August.

According to some observers, Saudi Arabia wants to manage the oil market via OPEC+ rather than through unilateral moves. But, it is not clear what the countries will do in the coming months.

Another reality is that spare capacity is quite limited, and Saudi Arabia and the UAE and the rest of OPEC+ have to manage it carefully. Their output may rise, but markets should not expect a big burst of production from Saudi Arabia this fall.

The president’s trip is not a magic wand. The Saudis would be most motivated by high oil prices in order to prevent demand reduction. It is impossible for any one country to fill the void left by sanctions on Russian oil, put in place over Moscow’s invasion of Ukraine.

There is no way that Saudi Arabia has the ability to produce as much oil as the world has lost because of the Russian embargo, and no country has that ability. At most, the Saudis could open the production tap to levels that would bring down oil prices by $10 to $15 per barrel. But this remains unlikely.

Instead, the Saudis are likely to stick to the OPEC+ timetable and only increase output after that if Russian production drops significantly.

And while crude oil prices, which were around $120 per barrel Friday, are a major predictor of gasoline prices, other factors, including reduced refining capacity, are also currently raising prices. That could be resolved by August, as new refineries open in the Middle East.

Biden is expected to meet with the Crown Prince in July, part of his first visit as president to the Middle East and that will likely kick off in Israel. The trip is considered essential for the president to demonstrate the administration’s commitment to the Middle East and Gulf.