Don’t expect boost in Saudi oil production right away, US warns

Jeddah, Saudi Arabia — The US is not expecting Saudi Arabia to immediately boost oil production and is eyeing the outcome of the next Opec+ meeting on August 3, the US national security adviser said on Friday, lowering expectations as US President Joe Biden visits the country.

“I don't think you should expect a particular announcement here bilaterally because we believe any further action taken to ensure that there is sufficient energy to protect the health of the global economy, it will be done in the context of Opec+,” Jake Sullivan said.

Biden was set to land in Jeddah on Friday on a trip that is designed to reset the US relationship with the Saudi Arabia and during which energy supply, human rights and security co-operation are on the agenda.

Still, the US could secure a commitment that Opec will boost production in the months ahead in hopes that it will provide a signal to the market that supplies are coming if necessary.

Saudi Arabia, alongside the United Arab Emirates, holds the bulk of spare capacity within the Opec+ group. Biden is expected to have direct meetings with Saudi and UAE heads of state during his trip.

But the country has repeatedly indicated it would not act unilaterally.

Brent crude prices are trading at just under $100 a barrel, having hit a 14-year high of $139.13 in March, as investors weigh new Covid-19 lockdowns in top importer China and recession fears.

“Saudi Arabia prefers to manage the market through Opec and allied producers (Opec+), not through unilateral moves,” Ben Cahill, a senior fellow at the Center for Strategic and International Studies, wrote in a recent analyst note.

“Saudi energy minister Abdulaziz bin Salman has consistently emphasised the importance of Opec+ cohesion, including a central role for Russia,” he said.

Anwar Gargash, diplomatic adviser to UAE President Sheikh Mohammed bin Zayed, also said on Friday his country wanted a more stable oil market and that it would abide by Opec+ decisions.

“The UAE is very much pro supporting and following US discussions with Saudi Arabia on oil because we are part of the greater Opec group, Opec+, so we would very much like to see more stability in the market and ability to produce more and we are going to follow where the group will follow,” he said.

The US is eager to see Saudi Arabia and its Opec partners pump more oil to help bring down the high cost of gasoline and ease the highest US inflation in four decades.

“The decision to increase oil production is subject to several factors and considerations and does not depend on a US request,” Abdulaziz Sager, chair of the Riyadh-based Gulf Research Center, said.

“There are technical, political and economic complications related to that decision.”

Spare capacity within Opec is running low, with most producers pumping at maximum capacity. It is unclear how much extra Saudi Arabia could bring to the market and how quickly.

Biden said recently that he would not ask Saudi leaders directly to increase oil production. Instead, he would continue to make the case that all Gulf states should raise oil output, he said.

Opec+ decided last month to increase output targets by 648,000 barrels per day (bpd) in August, ending record production cuts that it brought at the height of the pandemic to counter collapsing demand. 

Reuters