Why the U.S. and OPEC Plus Are At Odds – Ep. 1

(Feat. Donald Trump, Joe Biden, Saudi Arabia, UAE, Russia, China, Oil Price, Shale Gas, Energy and NEOM city)

As the 2024 presidential election approaches, there’s a topic we can’t overlook: Energy. It’s the backbone of the real economy, influencing inflation and the prices of almost everything we buy. From everyday goods to transportation, oil affects nearly all aspects of our world. Understanding energy isn’t just for economists; it’s essential for all of us.

This post will break it down in two episodes. First, we’ll dive into how U.S. relations with OPEC Plus unfolded during the Trump administration. Then, we’ll tackle the Biden administration’s approach, exploring what President Joe Biden and Vice President Kamala Harris have done so far. By the end, you’ll have a clearer picture of what the U.S.-OPEC Plus relationship could look like under the next president—and why it matters for your wallet. Ready to peek behind the curtain of global energy politics? Let’s get started!

1. Sometimes, looking back at history helps us understand the present. The same goes for oil prices.

2. From 2011 to 2013, oil prices ‘stabilized’ at around $90 per barrel.

3. Although this was five times higher than a decade earlier, oil-producing countries considered $90 per barrel a ‘fair price’​ (Wikipedia)​(Fed Prime Rate).

4. In the summer of 2014, China’s economic slowdown began to disrupt oil prices.

5. By October, prices had dropped to $84 per barrel, and with the rise in U.S. shale oil production, prices fell further to $77 in November​ (InflationData)(Fed Prime Rate).

6. Traditionally, OPEC would cut supply in situations like this to lift prices.

7. In November 2014, OPEC held a meeting in Vienna, Austria.

8. Saudi Arabia proposed that all oil-producing nations reduce their output slightly.

9. However, none of the OPEC member countries agreed.

10. In frustration, Saudi Oil Minister Ali Al-Naimi walked out, and the meeting ended with the decision to “let the market decide” ​(InflationData).

11. Oil-producing countries responded by increasing production, which caused prices to drop even more.

12. By January 2015, oil prices had halved to $45 per barrel and eventually dropped as low as $29 ​(EIA Homepage).

13. The emergence of shale oil split the oil industry into two categories: “short-term development” and “long-term development.”

14. Shale oil can be developed quickly, taking about six months and costing roughly $15 million per well.

15. However, shale wells dry up fast, which means constant new drilling is needed, making it a “short-term” venture.

16. Conventional oil, on the other hand, can take up to five years of preparation and requires an initial investment of over $700 million.

17. But once production starts, it can last much longer, which is why it’s considered a “long-term” development​.

18. As low oil prices persisted, many short-term projects were halted, leading to a reduction in supply. (That’s Also the reason why “Pennsylvania will decide 2024 President”)

19. In February 2016, Saudi Oil Minister Al-Naimi said, “If there’s no willingness to share the pain of production cuts, we’ll leave it to the market”. ​(Wikipedia)

20. Saudi Arabia, with its low production cost of around $10 per barrel and substantial financial reserves, felt confident it could withstand the pressure​.

21. However, other oil-producing nations with higher production costs began to struggle.

22. Even Russia, with relatively low production costs of around $40 per barrel, found itself in a tough spot when oil prices plunged to $25—forcing them to survive by gradually depleting their foreign currency reserves.

23. In September 2016, at the G20 summit in Hangzhou, China, Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman held a private meeting.

24. While the exact details of their conversation remain unknown, their negotiation eventually led to a deal .

25. Later that year, during the Algeria Energy Forum, OPEC and non-OPEC producers, including Russia, agreed to production cuts.

26. OPEC members reduced output by 1.2 million barrels per day, while Russia and other countries like Kazakhstan and Mexico cut another 575,000 barrels per day.

27. This marked the official formation of the OPEC+ alliance.

28. These production cuts boosted oil prices, and this deal also marked the beginning of a close relationship between bin Salman and Putin.

29. Contrary to recent perceptions, their cooperation had deep historical roots. ​

30. Meanwhile, the U.S. had become a net exporter of shale gas, which transformed the global energy landscape.

31. However, when Germany, a key customer of U.S. shale gas, proceeded with the Nord Stream 2 pipeline to import natural gas from Russia, tensions rose between the U.S. and its allies​.

32. In December 2019, President Donald Trump signed the National Defense Authorization Act, which imposed sanctions on companies involved in the Nord Stream 2 project.

33. This move forced Germany to delay the project, just as OPEC+ prepared for another meeting​.

34. In a twist, during an OPEC+ meeting that followed, it was Russian President Vladimir Putin who walked out, opposing further production cuts.

35. As global oil demand plummeted due to the COVID-19 pandemic, oil-producing nations had already agreed to production cuts to maintain prices.

36. Yet, Saudi Arabia’s Bin Salman surprised everyone by siding with Putin ​(Wikipedia).

37. At the time, bin Salman faced internal challenges.

38. His father, King Salman, was 86 years old, and bin Salman needed substantial financial reserves to secure a smooth transition to the throne.

39. Much of Saudi Arabia’s income came from oil, and bin Salman’s ambitious NEOM project, a futuristic city, required oil prices to remain above $85 per barrel​.

40. With this in mind, bin Salman joined Putin in a “chicken game” of low oil prices, announcing plans to increase Saudi oil production from 9.7 million barrels per day to 12.3 million.

41. This strategic move occurred just before President Biden’s visit to Saudi Arabia in 2022​.

42. Biden had requested Saudi Arabia increase production by 100,000 barrels per day.

43. But bin Salman’s previous announcement of a 2.6 million barrel increase dwarfed that request, which some viewed as a snub to Biden.

43. Saudi Arabia’s decision to ramp up production, along with Russia’s, sent oil prices plummeted.

44. That was March 2020.

AlphaZen Insights

We’ve just walked through the U.S. relationship with OPEC Plus during the Trump administration—marked by oil price drops, production disagreements, and a few diplomatic standoffs. But that’s only the beginning. As we gear up for 2024, energy is still a major issue, affecting everything from inflation to the price of goods we rely on daily.

In the next episode, we’ll dive into how Biden and Harris have navigated these tricky waters and what their approach means for the future. Could their energy policies shape the next election? Or will the U.S. find itself in a similar tug-of-war with OPEC Plus? Stick around—it’s about to get real, and it’s all tied to what hits your wallet!