World oil prices dipped on Thursday in Asia after media reports said Saudi Arabia has indicated to its western allies that it is prepared to raise oil production should Russia’s output fall substantially under the weight of western sanctions.
The price of US crude fell nearly 3% and the price of Brent, the global marker, was down 2.3% at one stage but edged back again in early European trading as the markets awaited the monthly statement on the production cap from OPEC+
Whether that report has Russia’s name attached to it, or contains a special statement from the Saudis is what has grabbed market interest.
The report, in the Financial Times, came a couple of days after the EU agreed to a partial ban on Russian oil, raising the pressure on the OPEC+ deliberations Wednesday and Thursday.
The reports came hours after the Russian government claimed it and Gulf oil producers had reaffirmed their support for the OPEC+ group.
That statement came a day before the group is expected to ratify another modest output hike for July in the face of rising oil prices.
News of the Saudi promise split the two reports and raises questions as to what exactly is going on in the OPEC+ group, especially after media reports earlier this week that suggested the Saudis were trying to drop Russia from the group.
Russian foreign minister Sergei Lavrov was in Saudi Arabia for talks with counterparts from the region, while a delegate-level OPEC+ advisory technical committee was convening to review market conditions.
He has been in the Gulf this week trying to stave off attempts to ease Russia out of OPEC+ which would be a further humiliation for the embattled country.
Some western media suggested the Russian statement was designed to lock the Saudis and other OPEC members into a deal that would see Russia remain part of the group before an OPEC Ministers meeting due to be held overnight June 2.
OPEC+, has come under scrutiny in recent days with those reports suggesting that Russia could be made exempt from its quota and that a larger production increase than the typical monthly 432,000 b/d could be considered for July.
According reports, OPEC+ analysts continue to see supply exceeding demand for much of 2022, with the full-year surplus at 1.4 million b/d – assuming the group fulfils its quota hikes as scheduled, which it has not done for months, S&P Global reported on Thursday.
In fact, the coalition fell 2.6 million barrels a day short of its targets in April, the report showed, as many countries are unable to raise production further and Russian output is falling – down 8% at the moment or more than 800,000 barrels a day.
S&P Global said that those OPEC countries with spare capacity – primarily Saudi Arabia and the UAE – have held off on breaching their quotas to maintain OPEC+ unity rather than spark a market share battle.
The Financial Times report suggested the Saudi commitment could be announced with the OPEC+ decision overnight Thursday.
