OPEC+ Agrees to Gradually Increase Supply

On Thursday of last week, OPEC+ met and agreed to reduce their cuts slightly, gradually phasing in roughly 1 MMbpd of production over the next three months. The market initially reacted favorably to the announcement, with crude up nearly $2/bbl late on Thursday. The initial reaction on Thursday stemmed from added certainty that OPEC+ won’t unleash millions of new barrels over the next three months, opting instead for a measured increase.  However, after the long market holiday weekend, prices are crashing lower once again, shedding half of Thursday’s gains.

The market had expected no change to the cuts, so the small output increase was bearish for oil markets. Adding to the news, Saudi Arabia clarified that it would discontinue its voluntary 1 MMbpd cuts in May – adding as much supply in one month as OPEC+ will add over the next 3 months.

Before the meeting, the US Secretary of Energy Jennifer Granholm reportedly called Saudi Arabia’s energy minister to emphasize the need for cheap energy to fuel the global economic recovery. After months of OPEC+ signaling they would maintain restraint, it appears the calls for price relief have swayed them to moderate their actions. We’ll see whether the group continues this new, gentler approach if/when prices move lower in the coming weeks.

In renewables news, the Biden administration is looking to expand the EPAs’ Renewable Fuels Standard to incorporate electric vehicles fueled by clean energy. Today, refiners must retire trade credits called “RINs” for every gallon of petroleum-based fuel they product. RINs are generated by blending fuel with ethanol and biodiesel, so they’re closely linked to biofuel economics. The price of RINs has skyrocketed lately, so the administration’s new approach could help to bring prices lower by increasing the supply of RINs.

The challenge for EVs is that it’s difficult to trace the power source all the way to the end-user. In addition, power producers, EV chargers, and manufacturers all claim they should get a cut of the RINs revenue, creating conflict over any policy decision. Although an interesting proposal, don’t expect an immediate decision on EVs joining the RFS.

For consumers, higher RINs prices raise the price of petroleum-based fuels while lowering renewable fuel costs. This means companies consuming higher biofuel blends, such as B20 diesel or E15 gasoline, benefit more from higher RINs prices than companies who do not incorporate biofuels into their fuel program portfolio. Consult your fuel provider for a tailored analysis of how biofuels should be used in your fuel program.