Otaiba’s comments sent oil prices crashing like a rock on Wednesday. US oil fell 12% to $108 a barrel. Brent, the global benchmark, fell 13% to $112 a barrel.
A key problem for the Saudi group: Russia is one of these allied producers.
Last Wednesday, OPEC+ said in a statement that it would increase production by 400,000 barrels per day in April – a small fraction of Russia’s 10 million barrels per day of crude oil production. The cartel had described the market as “well balanced”, despite oil prices rising 30% in the past two weeks.
“The UAE snapped. They were one of the last holdouts,” Robert Yawger, 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 imports of Russian crude and natural gas, but Europe, which receives far more Russian energy than the United States, did not. Yet sanctions on Russian banks and concerns over the ability to ship its oil have led to a shadow ban on the country’s energy industry, dramatically reducing the amount of Russian oil supplied to the world market.
The West has hoped to add oil from other sources, including OPEC members Iran and Venezuela.
OPEC, on the other hand, has the capacity to quickly increase supply, as Saudi Arabia and the United Arab Emirates have spare production capacity.
“We support production increases and will encourage OPEC to consider higher production levels,” Otaiba said.
“The UAE has been a reliable and responsible supplier of energy to global markets for more than 50 years,” Otaiba said, “and believes that stable energy markets are essential to the global economy.”
Europe would no longer depend on Russia
OPEC’s change of pace may stem from its unique sense of opportunity. This could wean Europe off Russian oil and tempt them to buy OPEC crude.
“The UAE is basically saying to Saudi Arabia and Kuwait, ‘Let’s use our spare capacity so the Europeans don’t have to depend on Russia anymore,'” said Andy Lipow, chairman of consultancy firm Lipow Associates.
“This is a 180 degree turnaround,” Lipow said, referring to the market’s interpretation of OPEC’s position.
Lipow added that OPEC leaders likely remember what happened in 2008 when oil soared above $145 a barrel, only to crash months later when the economy world collapsed in the midst of the financial crisis.
“You can turn the world into a recession,” Lipow said.
The sharp decline in oil prices improves the outlook for prices at the pump. The national average hit a record $4.25 a gallon on Wednesday, up 60 cents in a week, according to AAA.
Instead of hitting $4.50 a gallon, Lipow said current oil prices suggest the national average could hit around $4.35 a gallon.
– CNN’s Matt Egan contributed to this report
