OPEC+ Eyes Output Increase Ahead of Restrictions on Russian Oil

Saudi Arabia and other OPEC oil producers are discussing an increase in production, the group’s delegates said, a move that could help heal the rift with the Biden administration and keep energy flowing amid renewed efforts to disrupt Russia’s oil industry over the war in Ukraine.

A production increase of up to 500,000 barrels per day is currently being discussed at the OPEC+ meeting on Dec. 4, the messengers said. The move comes a day before the European Union imposes sanctions on Russian oil and the Group of Seven wealthy nations plans to introduce a price hike on Russian crude, which could be offset by Moscow’s petroleum market.

After the Wall Street Journal and other media organizations reported on the talks on Monday, Saudi energy minister Prince Abdulaziz bin Salman denied the reports and said production cuts were possible.

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Any increase in production would mark a partial reversal of last month’s controversial decision to cut output by 2 million barrels per day at the latest meeting of the Organization of the Petroleum Exporting Countries and its allies led by Russia, a group known collectively as OPEC+.

The White House said the production cuts undermined global efforts to defuse Russia’s war in Ukraine. It is also seen as a political slap in the face to President Biden, who is coming ahead of the midterm elections at a time of high inflation. Saudi-US relations have reached a low point due to disagreements on oil production this year, although US officials say they are looking at OPEC’s December 4 + with hope.

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Talk of increased production came after the Biden administration told a federal court judge that Saudi Crown Prince Mohammed bin Salman should be immune from a US federal lawsuit related to the brutal murder of Saudi journalist Jamal Khashoggi. The immunity decision reached a consensus for Prince Mohammed, strengthening his position as the ruler of the kingdom after the Biden administration tried for months to oust him.

It is an unusual time for OPEC + to consider an increase in production, with world oil prices falling more than 10% since the first week of November. Oil prices fell 5% after reports of an increase and then pared those losses after Prince Abdulaziz’s comments. Brent crude traded at $86.25 on Monday afternoon, down more than 1%.

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Obviously, the delegates said, the increase in production will be a response to the expectation that oil consumption will increase in the winter, as is normal. Oil demand is expected to increase by 1.69 million barrels per day to 101.3 million barrels per day in the first quarter of next year, compared to the average level in 2022.

Saudi energy minister Abdulaziz bin Salman said the kingdom would provide oil to ‘everyone who wants it.’


Photo:

UAHMED YOSRI/REUTERS

OPEC and its allies say they have carefully studied the G-7’s plans to put a price on Russian oil, privately admitting that they see any such move by crude buyers to control the market as a threat. Russia has said it will not sell oil to any country participating in the price measure, which could result in reduced output from Moscow – one of the world’s top three oil producers.

Prince Abdulaziz said last month that “the kingdom will supply oil to all who need it from us,” in response to a question about Russia’s oil shortage. OPEC members have signaled in the West that they will increase if Russia’s output falls.

Talk of a production increase sets up a potential fight between OPEC+’s two heavyweight producers, Saudi Arabia and Russia. The countries have an oil production alliance that business officials in both countries describe as a happy marriage, and they have clashed in the past.

Saudi officials have insisted that their decision to cut production last month was not intended to support Russia’s war in Ukraine. Instead, they said, the cuts were intended to come ahead of oil demand stemming from a global economy showing signs of slowing.

Raising oil production before the price cap and the EU embargo can give the Saudis another argument that they are acting on their own will, not Russia’s.

Another factor driving the debate over production increases: OPEC’s two biggest members, Iraq and the United Arab Emirates, want to pump more oil, OPEC delegates said. Both countries are pushing the oil-producing group to allow them a higher daily production ceiling, delegates said, a change that, if approved, could contribute to more oil production.

Under OPEC’s complicated quarterly system, the UAE is obliged to hold its crude production to no more than 3.018 million barrels per day. State-owned Abu Dhabi National Oil Co., which produces most of the UAE’s production, has a production capacity of 4.45 million barrels per day and plans to accelerate its goal to reach 5 million barrels of daily capacity by 2025. Abu Dhabi has long pushed. in OPEC’s maximum quota, only to be washed away by the Saudis, OPEC delegates said.

Last year, the country was the only country to agree to increase crude production in OPEC+, saying it would only agree if it was allowed to increase its production more than other members. The public stance within OPEC was the first sign that the UAE had adopted a new strategy: Sell as much crude as possible before demand dries up.

Earlier this month, Iraqi Prime Minister Mohammed Shia’ al-Sudani said his country, the second largest producer of crude oil in OPEC, would discuss the new quota with other members at its next meeting.

Discussions on OPEC production quotas have been stalled for months. The idea faces opposition from other OPEC countries because most cannot meet current targets and watching other countries push their quotas could cause internal political problems, delegates said.

Michael Amon contributed to this article.

Write to Summer Said at [email protected] and Benoit Faucon at [email protected]

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