The arrival of Saudi Arabia, OPEC and Biden could offset the loss of Russian oil production

The logo of the Organization of the Petroleum Exporting Countries (OPEC) was unveiled on June 19, 2018 at the headquarters of the OPEC in Vienna, Austria. REUTERS / Leonhard Foeger / File Photo

Dubai / London / Riyadh, June 2 (Reuters) – Saudi Arabia and other OPEC countries may increase oil production to offset falling Russian output, which could lead to skyrocketing oil prices and rising inflation. US President Joe Biden’s visit to Riyadh.

Two OPEC + sources said the group was working to offset a drop in Russian oil production as Russia’s production fell by about 1 million barrels (bpd) a day as a result of Western sanctions on Moscow over Ukraine.

Sources say that OPEC + is likely to increase production to 650,000 bpd in July and August, from the initial plan to increase production to 432,000 bpd in July, August and September.

Oil fell to $ 1 to $ 115 a barrel on news of a possible OPEC release stimulus, but still rose more than a decade after close to an all-time high of $ 147 this year.

An OPEC + source familiar with Russia’s position said that Moscow could agree with other manufacturers to increase production to offset Russia’s lower production, although not all shortages were necessarily offset.

“Ultimately, compensation may be agreed,” the source said, but the decision will not be made at Thursday’s meeting of OPEC +, an alliance of petroleum-exporting countries, Russia and other organizations.

However, a Gulf constituency in OPEC + said at a cabinet meeting on Thursday that a decision on the matter was “highly likely”.

U.S. diplomats have been working for weeks to arrange Biden’s first visit to Riyadh after a two – year relationship rupture due to differences over human rights, the war in Yemen and US arms supplies to the country.

US intelligence has accused Saudi Prince Mohammed bin Salman, also known as MBS, of endorsing the assassination of Saudi journalist Jamal Kashoki in 2018, but the prince has denied the allegations.

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

As the Ukraine war enters a tight crude market, the US administration has demanded additional supplies from Gulf allies such as Saudi Arabia and Iran, which has been banned by US sanctions if a nuclear deal is reached. And Venezuela, under US sanctions.

Approval ratings

Raising petrol prices has pushed US inflation to a 40-year low, hitting Biden’s approval ratings as the midterm elections approach. Meanwhile, Biden has so far refused to deal with the MBS as the current ruler of Saudi Arabia.

A source close to the matter said that Washington wanted clarity on oil production plans ahead of Biden’s visit to the summit with Gulf Arab leaders, including the MBS in Riyadh. read more

The second source, familiar with the debate over Biden’s visit, said the issue was not only related to oil production, but also to Gulf security issues and human rights. The source said both Riyadh and Washington were more than willing to listen to the concerns of others.

OPEC + ministers, who began online talks on Thursday after 1210 GMT, were widely expected to stick to the current plan for a regular monthly increase of 432,000 bpd until September, when the deal expires.

However, OPEC + sources said the discussion focused on raising production by 650,000 bpd in July and August, but did not say whether any increase was planned for September.

Industry estimates suggest that Western sanctions could reduce production from Russia, the world’s second-largest oil exporter, by 2 million to 3 million ppd.

Russia was already producing below its OPEC + target of 10.44 million ppm in April, with production of about 9.3 million.

A Western diplomat has said that Russia may be willing to agree with other members of the OPEC + to fill the gap in its release in order to maintain the support of the Gulf, which seeks to take a neutral position on the Ukraine war, and to maintain unity within the group.

OPEC + agreed to reduce production to record levels when it hit epidemic demand in 2020. In September, when the contract expires, there will be less spare capacity to further boost the group’s productivity.

Saudi Arabia now produces 10.5 million ppm and has barely tested sustainable production levels above 11 million ppm. Riyadh says it is working to increase its nameplate capacity from the current 12.4 million to 13.4 million bpd by 2027.

Although OPEC is estimated to have a total reserve capacity of less than 2 million bpd, the UAE is the only other OPEC state with significant oil production potential.

“There is not much oil in the market to replace the lost barrels from Russia,” said Bjarne Schieldrop, SEB Bank’s chief analyst.

Alex Lawler, Rowena Edwards, Ahmad Ghddar, Aziz El Yaakoubi in Riyad and Andrew Mills in Doha; Written by Dmitry Zhdannikov and Ghaida Gantous; Editing Jason Blue and Edmund Blair

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