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First sign of relief in oil prices: UAE says it wants OPEC to increase production

March 10, 2022
Henry Club

Yousef Al Otaiba, UAE’s ambassador to Washington, told CNN on Wednesday that the country wants to increase oil production And the Organization of the Petroleum Exporting Countries (OPEC) will encourage the cartel to increase supply.

Otaiba’s comments sent oil prices down like a rock on Wednesday. US oil fell 12% to less than $109 a barrel. Global benchmark Brent crude fell 13% to $111 a barrel. It marked his biggest one-day drop in nearly two years.

If the United Arab Emirates can convince its allies to turn on the spigots, it will mark a change For the cartel, which in its meeting with allied producers last week – a grouping known as OPEC+ – defying pressure from developed economies to slash prices, plans to gradually add oil to the market. agreed to live together.

A major problem for the Saudi-led group: Russia is one of those affiliated producers.

Last Wednesday, OPEC+ said in a statement it would increase production by 400,000 barrels per day in April – a tiny fraction of Russia’s 10 million barrels per day crude output. The cartel called the market “well balanced” despite oil prices rising 30% over the past two weeks.

“The UAE broke down. They were one of the last holdouts,” Robert Yeager, vice president of energy futures at Mizuho Securities, told CNN. “Now that they’ve said it, you can expect the Saudis to say the same thing.”

The Biden administration on Tuesday banned Russia’s imports of crude and natural gas, but Europe, which receives more Russian energy than the United States, has not. Still, sanctions on Russian banks and concerns about its ability to ship oil have cast shadow restrictions on the country’s energy industry, drastically reducing the amount of Russian oil supplied to the global market.

The West hoped it could add oil from other sources, including OPEC member Iran and Venezuela.

Before sanctions on Iran came into force, it Produced about 4 million barrels per day, But the withdrawal of the United States from the nuclear deal with the country has prove elusive, The United States has also started discussions with Venezuela, whose crude was approved in 2019. But the financially crippled South American country was not producing much oil even before the embargo.

In contrast, OPEC has the ability to ramp up supply as Saudi Arabia and the UAE have additional production capacity.

“We are in favor of increasing production and would encourage OPEC to consider higher production levels,” Otaiba said.

The UAE’s Ministry of Energy did not issue a statement, but Otaiba’s comments were later tweeted by the country’s embassy in Washington. It is the first sign that the OPEC nation may be ready to keep oil prices out of control. Some economists fear drivers, air travelers and businesses may start change their buying behavior If oil moves too far, it could potentially hurt the global economy.

“The UAE has been a reliable and responsible supplier of energy to global markets for more than 50 years,” Otaiba said, “and believes that sustainability in energy markets is critical to the global economy.”

Europe will no longer depend on Russia

OPEC’s change of tune may come from a sense of a unique occasion. It could wean Europe away from Russian oil and keep them buying OPEC crude.

“The UAE is essentially saying to Saudi Arabia and Kuwait, ‘Let’s use our excess capacity so that Europeans no longer have to depend on Russia,'” said Andy Lipo, president of consulting firm Lipo Associates.

Referring to the market’s interpretation of OPEC’s stance, Lipo said, “It’s a 180-degree change.”

Lipo said OPEC leaders are probably remembering what happened in 2008 when oil climbed above $145 a barrel, only to crash months later when the world economy collapsed amid the financial crisis.

“You can turn the world into a recession,” Lipo said.

The sharp fall in oil prices has improved the price outlook at the pump. According to AAA, the national average hit a record $4.25 a gallon on Wednesday, rising to 60 cents a week.

Instead of hitting $4.50 per gallon, Lipo said current oil prices suggest the national average could be around $4.35 per gallon.

— CNN’s Matt Egan contributed to this report