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 supplies.
Otaiba’s comments led to a sharp drop in oil prices on Wednesday. Oil in the US fell 12% to less than $109 a barrel. Brent crude, the global benchmark, fell 13% to $111 a barrel. It was their sharpest one-day decline in nearly two years.
If the UAE convinces its partners to turn on the taps, it will be a watershed moment for the cartel, which, at a meeting last week with allied producers – a group known as OPEC+ – agreed to stick to a plan to gradually add oil to the market. , defying pressure from advanced economies to do more to lower prices.
A key issue for the Saudi-led group: Russia is one of those allied producers.
Last Wednesday, OPEC+ said in a statement that it will increase production by 400,000 bpd in April, a fraction of Russia’s 10 million bpd of crude oil production. The cartel called the market “well balanced” despite oil prices rising 30% in the past two weeks.
“The UAE has split. They were among the last to fight back,” Robert Yauger, 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 oil and natural gas, but Europe, which receives far more Russian energy than the United States, did not. However, sanctions against Russian banks and concerns about being able to supply their own oil have led to a covert ban on the country’s energy industry, drastically reducing Russian oil supplies to the world market.
The West hoped it could add oil from other sources, including OPEC members Iran and Venezuela.
Before the imposition of sanctions against Iran, it produced about 4 million barrels per day. But returning the United States to a nuclear deal with that country has proved elusive. The United States has also begun talks with Venezuela, whose oil was sanctioned in 2019. But this economically weakened South American country wasn’t producing much oil even before the ban was introduced.
OPEC, by contrast, is in a position to increase supply quickly as Saudi Arabia and the UAE have spare production capacity.
“We are in favor of increasing production and will encourage OPEC to consider increasing production levels,” Otaiba said.
The UAE Ministry of Energy did not release a statement, but Otaiba’s comments were subsequently tweeted by the country’s embassy in Washington. This marks the first hint that the OPEC country may want to keep oil prices from running wild. Some economists fear that drivers, air travelers and businesses may start to change their buying behavior if oil rises even more, which could hurt the global economy.
“The UAE has been a reliable and responsible supplier of energy to global markets for over 50 years,” Otaiba said, “and believe that stability in energy markets is critical to the global economy.”
Europe will no longer rely on Russia
The change in sentiment on the part of OPEC may be due to its sense of a unique opportunity. This could wean Europe off Russian oil and force them to buy OPEC oil.
“The UAE is basically saying to Saudi Arabia and Kuwait, ‘Let’s use our spare capacity so the Europeans don’t have to rely on Russia anymore,’” said Andy Lipow, president of consulting firm Lipow Associates.
“It’s a 180-degree turn,” 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 and then collapsed months later as the global economy collapsed amid the financial crisis.
“You can turn the world into a recession,” Lipov said.
The sharp decline in oil prices improves the outlook for gas station prices. The national average rose to a record $4.25 a gallon on Wednesday, up a staggering 60 cents on the week, according to AAA.
Lipow said instead of hitting $4.50 a gallon, current oil prices suggest the national average could top $4.35 a gallon.
— Matt Egan of CNN contributed to this report.