OPEC + offers increases in oil production as Biden’s visit to Saudi Arabia approaches

The logo of the Organization of the Petroleum Exporting Countries (OPEC) at the OPEC headquarters in Vienna, Austria, June 19, 2018. REUTERS/Leonard Voyager/File Photo

DUBAI/LONDON/RIYADH (Reuters) – Saudi Arabia and other OPEC+ countries have agreed to provide increases in oil production to offset Russian production losses to ease high oil prices and inflation and pave the way for an ice-breaking visit to Riyadh. US President Joe Biden.

OPEC+ said it agreed to raise production by 648,000 bpd in July – or 0.7% of global demand – and a similar amount in August against the initial plan to add 432,000 bpd in the month for the three months to September.

The move will be seen as a sign that Saudi Arabia and other Gulf OPEC members are ready to pump more after months of pressure from the West to tackle a global energy shortage exacerbated by Western sanctions on Russia.

Oil climbed on the news towards $117 a barrel, as analysts said a real production increase would be insignificant as most OPEC members, with the exception of Saudi Arabia and the UAE, are already pumping out capacity. Earlier this year, oil approached an all-time high of $147 in 2008.

OPEC+, an alliance of the Organization of the Petroleum Exporting Countries and other producing countries, includes Russia, whose production has fallen by about 1 million barrels per day in the wake of Western sanctions on Moscow over its invasion of Ukraine.

US diplomats have worked for weeks to orchestrate Biden’s first visit to Riyadh after two years of strained relations over disputes over human rights, the war in Yemen and US arms supplies to the kingdom.

US intelligence has accused Saudi Crown Prince Mohammed bin Salman, better known as Mohammed bin Salman, of approving the 2018 murder of Saudi journalist Jamal Khashoggi, a charge the prince denies.

Saudi Arabia and its neighbor the United Arab Emirates have been frustrated by the Biden administration’s opposition to the military campaign in Yemen and the failure to address Gulf concerns about Iran’s missile program and its regional proxies.

With the Ukraine war adding to the tight crude oil market, the US administration has sought more supplies from Gulf allies such as Saudi Arabia, as well as from Iran whose production has been limited by US sanctions that could be lifted if a nuclear deal is reached. And Venezuela, also under US sanctions.

Biden approval ratings

A skyrocketing gasoline price has sent US inflation to a 40-year high, sending Biden’s approval ratings lower as he approaches the midterm elections. Biden has so far refused to deal with Mohammed bin Salman as the de facto ruler of Saudi Arabia.

A source familiar with the matter said Washington wanted to clarify oil production plans ahead of a possible visit by Biden to hold a summit with leaders of Gulf Arab states, including Mohammed bin Salman, in Riyadh. Read more

A second source familiar with discussions about Biden’s visit said the issue is not only related to oil production, but also Gulf security and human rights issues. The source said that Riyadh and Washington have shown greater willingness to listen to the other side’s concerns.

The White House said it welcomed Thursday’s decision and recognized Saudi Arabia’s role in achieving OPEC+ consensus.

Western sanctions could cut production from Russia, the world’s second-largest oil exporter, by as much as two to three million barrels per day, according to a range of industry estimates.

Russia was already producing less than its OPEC+ target of 10.44 million bpd in April, with production at around 9.3 million bpd.

A Western diplomat said Russia may be willing to agree with other members of OPEC+ to plug a gap in its production to maintain unity in the group and maintain support from the Gulf, which tends to take a neutral stance on the Ukraine war.

OPEC+ agreed to cut production by a record amount in 2020 when the pandemic affected demand. By September, when the deal expires, the group will have limited spare capacity to ramp up production further.

Saudi Arabia produces 10.5 million barrels per day and has rarely tested sustainable production levels above 11 million barrels per day. Riyadh says it is working to increase its nominal capacity to 13.4 million bpd from the current 12.4 million by 2027.

The only other OPEC country with significant capacity to produce more oil is the UAE, although OPEC estimates less than 2 million barrels per day of spare capacity in total.

Amrita Sen, co-founder of Energy Apsects think tank, said the real production increase during the July-August period would be around 560,000 barrels per day – compared to 1.3 million barrels per day – because most members have already outgrown.

“These quantities will hardly affect the market deficit,” she said.

(Additional reporting by Alex Lawler, Rowena Edwards, Ahmed Ghaddar and Aziz Al-Yaqoubi in Riyadh, and Andrew Mills in Doha.) Written by Dmitriy Zhdanikov and Ghaida Ghantous. Editing by Jason Neely, Edmund Blair and Barbara Lewis

Our criteria: Thomson Reuters Trust Principles.