Higher output would
partially reverse cuts
amid an expected EU
embargo on Moscow
OPEC oil producers are discussing an output increase,
the group’s delegates said, a
move that could help heal a
rift between Saudi Arabia and
the Biden administration and
keep energy flowing amid new
attempts to blunt Russia’s oil
industry over the Ukraine war.
A production increase of up
to 500,000 barrels a day is under discussion for OPEC+’s
Dec. 4 meeting, delegates said.
The move would come a day
before the European Union is
set to impose an embargo on
Russian oil and the Group of
Seven wealthy nations plans
to cap the price of Russian
crude sales, potentially taking
Moscow’s petroleum supplies
off the market.
After The Wall Street Journal and other news organizations reported on the discussions on Monday, Saudi
Energy Minister Prince Abdulaziz bin Salman denied the
reports and said a production
cut was possible instead.
Any output increase would
mark a partial reversal of a
controversial decision in October to cut production by 2 million barrels a day at the most
recent meeting of the Organization of the Petroleum Exporting Countries and their
Russia-led allies, a group
known collectively as OPEC+.
The White House said the
production cut undermined
global efforts to blunt Russia’s
war in Ukraine. It was also
viewed as a political slap in the
face to President Biden, coming before the congressional
midterm elections at a time of
high inflation. Saudi-U.S. relations have hit a low point over
oil-production disagreements
this year, though U.S. officials
had said they were looking to
the Dec. 4 OPEC+ meeting with
some hope.
Talk of a production increase has emerged after the
Biden administration told a
federal-court judge that Saudi
Crown Prince Mohammed bin
Salman should have sovereign
immunity from a U.S. federal
lawsuit related to the brutal
killing of Saudi journalist Jamal Khashoggi. The immunity
decision amounted to a concession to Prince Mohammed,
bolstering his standing as the
kingdom’s de facto ruler after
the Biden administration tried
for months to isolate him.
It is an unusual time for
OPEC+ to consider a production increase, with global oil
prices falling more than 10%
since the first week of November. Oil prices fell 5% after reports of the increase and then
pared those losses after Prince
Abdulaziz’s comments.
Brent crude was little
changed at $87.45 a barrel late
Monday, while West Texas Intermediate crude fell 0.4% to
$79.73 a barrel, its lowest
close since Sept. 30.
Ostensibly, delegates said, a
production increase would be
in response to expectations
that oil consumption will rise
in the winter, as it normally
does. Oil demand is expected
to increase by 1.69 million barrels a day, to 101.3 million barrels, in the first quarter next
year, compared with the average level in 2022.
OPEC and its allies said
they have been carefully
studying the G-7 plans to impose a price cap on Russian
oil, conceding privately that
they see any such move by
crude consumers to control
the market as a threat.
Russia has said it wouldn’t
sell oil to any country participating in the price cap, potentially resulting in another effective production cut from
Moscow—one of the world’s
top three oil producers.
Prince Abdulaziz said in October that the kingdom would
“supply oil to all who need it
from us,” speaking in response
to a question about looming
Russian oil shortages. OPEC
members have signaled to Western countries that they would
step up if Russian output fell.
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 industry officials in both
nations have described as a
marriage of convenience, and
they have clashed before.
Saudi officials have been
adamant that their decision to
cut production in October
wasn’t designed to support
Russia’s war in Ukraine. Instead, they said, the cut was
intended to get ahead of flagging demand for oil caused by
a global economy showing
signs of slowing.
Raising oil production
ahead of the price cap and EU
embargo could give the Saudis
another argument that they
are acting in their own interests, and not Russia’s.
Another factor driving discussion around raising output:
Two big OPEC 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
granted, could account for
more oil production.
Under OPEC’s complex quota
system, the U.A.E. is obligated
to hold its crude production to
no more than 3.018 million barrels a day. State-owned Abu
Dhabi National Oil Co., which
produces most of the U.A.E.’s
output, has an output capacity
of 4.45 million barrels a day
and plans to accelerate its goal
of reaching 5 million barrels of
daily capacity by 2025. Abu
Dhabi has long pushed for a
higher OPEC quota, only to be
rebuffed by the Saudis, OPEC
delegates have said.
Last year, the country was
the lone holdout on a deal to
boost crude output in OPEC+,
saying it would agree only if
allowed to boost its own production much more than other
members.
The public standoff inside
OPEC was the first sign that the
U.A.E. has adopted a new strategy: Sell as much crude as possible before demand dries up.
This month, Prime Minister
Mohammed Shia’ al-Sudani of
Iraq said his country, which is
the second-largest crude-oil
producer in OPEC, would discuss a new quota with other
members at its next meeting.
A discussion of OPEC production quotas has been on
hold for months. The idea
faces opposition from some
OPEC nations because many
can’t meet their current targets and watching other countries run up their quotas could
cause political problems domestically, delegates said