Saudi Arabia is ready to pump more oil if Russian production falls below the ban

Saudi Arabia has indicated to Western allies that it is prepared to increase oil production if Russia’s production falls significantly below the weight of sanctions, according to five people familiar with the discussions.

The kingdom has resisted calls from the White House to accelerate production growth despite the fact that oil prices traded close to $ 120 a barrel, the highest level in a decade, and claimed that the energy crisis could be significantly worse this year. Saudi Arabia believes they must keep spare production capacity in reserve.

But fears of a direct shortage of supplies have increased since the EU launched a new round of sanctions against Moscow, including a ban on importing seaborne cargoes of Russian oil into the bloc.

The EU has also agreed on a deal with the UK to prevent insurance for ships carrying Russian oil later this year, a move analysts said would likely reduce Moscow̵[ads1]7;s ability to redirect oil to other regions.

“Saudi Arabia is aware of the risk and that it is not in their interest to lose control of the oil price,” said a person who briefed on the kingdom’s thinking.

Oil prices fell on Thursday, falling to a low of $ 112.80 a barrel in early trading from $ 116.29 at closing time on Wednesday. Prices reached a two-month high above $ 120 per barrel this week.

Saudi Arabia’s view is that although the oil market is undoubtedly tight, which has contributed to inflation, there is still no real shortage, according to diplomats and industry sources informed of the discussions, which came ahead of a monthly meeting with Opec + oil. producer alliance thursday.

But that may change as global economic recovery from Covid-19, including the reopening of major cities in China, increases demand, while the likelihood of Russia’s oil production declining significantly has increased. Russia produced more than 10 percent of the world’s crude oil before the invasion of Ukraine.

There have been tensions between the United States and the Saudi leadership, including with Crown Prince Mohammed bin Salman, the kingdom’s de facto ruler. Saudi Arabia has repeatedly rejected calls from the White House and the G7 to speed up production immediately.

But several visits in recent weeks by a high-level U.S. delegation, including Brett McGurk, White House Middle East policy coordinator, and Amos Hochstein, White House energy envoy, have helped improve relations, according to a person familiar with the matter. diplomats.

People familiar with the talks said Saudi Arabia had agreed to a shift in tone to try to calm prices as part of an approach to Joe Biden’s administration. It has also offered assurances that it would ultimately respond by increasing production if a supply crisis were to hit the oil market.

“Such steps are in the realm of the possible in response to materially positive movements on the American side,” said Ali Shihabi, a Saudi commentator familiar with the leadership’s thinking, referring to attempts to level the playing field before a possible visit by President Biden. . year.

A diplomatic source said there had been discussions about an immediate increase in production from Saudi Arabia and the United Arab Emirates, which could be announced at Thursday’s Opec + meeting. But nothing has been completed yet, and Opec + can still stick to the production plan that has been in place since the beginning of the Covid crisis.

Production increases planned for September will be accelerated to July and August, the source said, although the group must approve the change.

Christyan Malek, head of oil and gas at JPMorgan, said that Saudi Arabia was still “on guard against using up all available capacity”, as it believes it needs enough in reserve to be able to respond to what may develop in the market ยป.

“Even though it would be too early to burn through all available capacity now, they are willing to react if the market starts to get out of control. They see spare capacity as the last line of defense against the recession risk that oil spirals higher. “

Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman, the Crown Prince’s half-brother, has emphasized that he still sees Russia as a critical partner in the Opec + alliance. The countries have led the expanded oil producer group since 2016.

However, Moscow may be offered an exemption from the production target if production declines significantly. Both Libya and Iran have previously been exempted from Opec + targets as war and sanctions hampered their ability to produce.

Russian Foreign Minister Sergei Lavrov is visiting Riyadh this week to meet with his Saudi and UAE counterparts. They confirmed their agreement to continue cooperating in Opec +. The oil exporter group cut production sharply in April 2020, but has added some production every month.

“Even if the relationship between Saudi Arabia and the United States moves towards rapprochement, the kingdom will not turn its back on Russia,” said Amrita Sen at Energy Aspects, a consulting firm.

Source link

Back to top button

mahjong slot