Oil prices fall after UAE says it wants OPEC to increase production

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

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.

If the UAE convinces its partners to turn on the taps, it would mark a turnaround for the cartel, which at its meeting last week with allied producers – a group known as OPEC+ – agreed to s stick to a plan of gradually adding oil to the market. , defying pressure from developed economies to do more to ease prices.

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.

Before sanctions were applied to Iran, it produced about 4 million barrels a day. But the United States’ return to a nuclear deal with the country has proven elusive. The United States has also started discussions with Venezuela, whose crude was sanctioned in 2019. But the economically crippled South American country was not producing much oil even before the ban.

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’s energy ministry did not release a statement, but Otaiba’s comments were later tweeted out by the country’s embassy in Washington. It’s the first hint that an OPEC country might be willing to keep oil prices from spiraling out of control. Some economists worry that drivers, air travelers and businesses could start changing their buying behavior if oil continues to rise, which could harm 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 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


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