Saudis, Allies Open Door to Oil-Output Cut to Keep Prices High
Saudi Arabia and some of its oil-producing allies have suggested cutting crude production, disappointing U.S. officials who predicted the kingdom would be instrumental in cooling the market after President Biden met Crown Prince Mohammed bin Salman for the first time in office.
The Saudi-led Organization of the Petroleum Exporting Countries and a coalition of producers led by Russia—collectively known as OPEC+—agreed to a smaller-than-expected production increase earlier in August. Now, Saudi Arabia’s energy minister and some OPEC officials have suggested the alliance could extract fewer barrels of oil in order to stabilize a market buffeted by economic uncertainty, the risk of global recession and energy sanctions triggered by Ukraine war.
“OPEC+ has the commitment, the flexibility, and the means…to deal with such challenges and provide guidance including cutting production at any time and in different forms,” Saudi Energy Minister
Prince Abdulaziz bin Salman
said late Monday. The Saudi state news agency published his comments first made in an interview with Bloomberg.
He described oil markets as “in a state of schizophrenia” and said Saudi Arabia would soon begin working on a new OPEC+ agreement beyond 2022.
also maintained a commitment to a yearlong tie-up with Russia that has frustrated U.S. policy makers trying to isolate Moscow over the Ukraine war.
The comments are the latest indication that Mr. Biden’s July visit to Jeddah didn’t help toward lower prices at American gas stations, and are the opposite of what the Biden administration hoped to achieve during the president’s trip to the kingdom in July.
Several OPEC members also told The Wall Street Journal on Tuesday that they might back a reduction in output, particularly if a global recession materializes.
The Saudi energy chief’s comments pushed oil prices higher, which climbed by $1.3 to around $97.80 a barrel early Tuesday, after a sell off in recent months. Prices for a barrel of crude are still 17% lower than in early June.
Falling gas prices in the U.S. in recent weeks, spurred in part by recession fears and recurring Chinese lockdowns, have helped President Biden, and any move to reduce oil output could undo those gains.
A production cut could also partly negate any reintroduction of Iranian oil to the market if talks to revive the 2015 nuclear deal, which are at a crucial stage, prove successful. Sanctions reimposed after the collapse of the agreement have kept Iranian oil largely out of play since 2018, when the U.S. withdrew from the deal. The White House had hoped reinvigorating the arrangement and the addition of Iranian oil would curb prices when Americans vote in midterm elections this fall.
The U.S. and its allies have persistently called on oil producers to make up for dwindling supplies caused by sanctions imposed on Russia after it invaded Ukraine. The war sent oil prices above $100 a barrel for the first time in eight years.
The divergent positioning from Washington and Riyadh on global energy markets points to a deeper disconnect between the world’s biggest oil consumer and its top crude exporter.
The signaling from Riyadh contrasts sharply with the White House’s public and private expectations of the Saudis following Mr. Biden’s high-profile trip to the kingdom, where he met with
for the first time during his presidency.
Two days after the visit,
the State Department’s senior adviser for energy security, said in a TV interview that “Based on what we heard on the trip, I’m pretty confident that we’ll see a few more steps in the coming weeks.”
A week later, a senior administration official said that the White House was “optimistic that there could be some positive announcements coming out of the next OPEC meeting.”
After boosting output by 648,000 barrels a day in July and August, however, the alliance agreed Aug. 3 to raise its collective production by only 100,000 barrels a day in September. In response, Mr. Hochstein called on producers to pump more “when possible and to the degree that it is necessary to keep these prices coming down.”
Months of quarreling over the optimal level of oil production has exacerbated frictions between the U.S. and Saudi Arabia, whose relationship hit a historic low in the first year of the Biden administration amid disagreements that also included human rights, the war in Yemen and the Iran nuclear deal.
The president’s trip to Jeddah in mid-July had been aimed at repairing ties and establishing a personal relationship with the crown prince, whom he had vowed to treat as a pariah over the 2018 killing of journalist Jamal Khashoggi. The president greeted the de facto Saudi ruler outside the royal palace with a fistbump and stayed with him for a couple of hours.
Since then, divergent accounts have emerged about what the two sides discussed and agreed to.
The Biden administration received initial indications the Saudis could back an output rise of as much as 500,000 barrels a day at the August meeting, according to Saudi officials. But OPEC+ eventually opted only for a 100,000 barrel a day increase.
The U.S.’s National Security Council, the State Department and the Saudi Energy Ministry didn’t immediately respond to requests for comment.
The Saudis have been dissatisfied with Washington’s focus on the kingdom’s human-rights violations, including the murder of Mr. Khashoggi by men close to Prince Mohammed, and are unhappy with the administration’s insistence on returning to the Iran deal, the Saudi officials said.
Riyadh is also content with the windfall it is seeing since crude prices recovered from a 2020 price war with Russia, and the pandemic. Aramco, the Saudi national oil company, posted a 90% jump in profit in the second quarter, generating billions of dollars in cash that is infusing fresh momentum into the kingdom’s ambitious economic makeover and strengthening its geopolitical power. The result was the highest quarterly net income Aramco had posted since it started trading its shares on the Saudi stock exchange in 2019.
Saudi Arabia registered 11.8% on-the-year economic growth in the second quarter. While the International Monetary Fund predicts growth of 7.6% this year, more-bullish economists forecast a rate of 10%. That higher estimate would make it one of the world’s highest economic performers, as the U.S. and Europe worry about recession.
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