Six days after U.S. President Joe Biden flew out of Saudi Arabia – without any public commitment from Riyadh to increase crude output significantly – Russian President Vladimir Putin and Saudi Crown Prince Mohammad bin Salman spoke by phone, underlining the importance of enhanced co-operation among the Organization of Oil Exporting Countries and its ally Russia, in the expanded OPEC+.
The conversation occurred amidst western efforts to isolate Russia in the oil markets and squeeze the flow of petrodollars to Moscow. During the conversation between the two leaders, “the current situation on the world oil market was considered in detail. The importance of further co-ordination within the framework of OPEC+ was emphasized,” the Kremlin said in a readout of the call. The telephone discussion reinforced the impression that Saudi Arabia was not ready – at least yet – to ditch Russia and move along the lines suggested by Washington and its allies in the war against Moscow on the Ukraine war.
And interestingly, while the battle of ‘crude’ alignments and realignments continues, for a change, Saudi Arabia admitted it does not have unlimited capacity to keep pumping and meet the global requirements single-handedly.
This is in sharp contrast to Saudi Arabia’s stances in the past. One could recall the then Saudi oil minister Ali Al-Naimi, while addressing an International Energy Forum meeting, underlining Saudi Arabia could ramp up its production to somewhere close to 16 million barrels per day (bpd).
Even this May, Prince Abdulaziz bin Salman, the current Saudi energy minister and the former deputy of minister Ali Al-Naimi, had underlined that Saudi production would “most likely” be raised to a range of 13.3 million and 13.4 million barrels a day by “the end of 2026 or beginning of 2027.”
No more. And it is official.
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Media reports now say that at the recent U.S.-Arab summit in Jeddah, Saudi Crown Prince Mohammed had explicitly said, “The kingdom has announced an increase in its production capacity level to 13 million bpd, after which the kingdom will not have any additional capacity to increase production.” Quoting informed sources familiar with Saudi Arabia’s oil production capabilities, the Wall Street Journal also reported that Saudi Arabia had limited additional crude oil production capacity. Riyadh is currently pumping about 10.5 million bpd and has been saying its production capacity is 12 million bpd. Sources, however, told the WSJ that Saudi Arabia would have difficulty sustaining an output level of 11 million bpd for more than a few months or a bump to 12 million for more than a few weeks.
Others, including OilPrice.com’s Julianne Geiger, continue to say that the oil kingdom’s true spare capacity is limited. For June, Saudi Arabia produced 10.424 million bpd, an increase of 60,000 bpd from the month prior. But it was still below its allocated quota of 10.662 million bpd for June. This meant Saudi Arabia missed its output target for June by 238,000 bpd. Its underproduction lends credence to the notion that Saudi Arabia might not have as much spare capacity as some think, Geiger underlined.
And the controversy continues around the issue of a price cap on Russian crude exports, which U.S. Treasury Secretary Janet Yellen has been pushing for in recent months. A price cap on Russian oil should go into effect alongside the December implementation of the European Union’s restrictions on insurance for the commodity, Daniel Flatley of Bloomberg News reported, quoting a Biden administration official.
“We are following on what the Europeans have done,” Deputy Treasury Secretary Wally Adeyemo told the Aspen Security Forum in Colorado. “They introduced the idea of looking to do a price cap, but they also said that by December, they plan to put in place their insurance ban.”
Moscow is aware of all these developments and is beginning to counteract them. Russia will not supply oil to countries that decide to impose a price cap on its oil, Russian Central Bank Governor Elvira Nabiullina told a briefing this Friday. “As far as I understand, we won’t be supplying oil to those countries which would impose such a cap and our oil, oil products, will be redirected to the countries which are ready to cooperate with us,” Nabiullina said.
Even earlier on Wednesday, Russian Deputy Prime Minister Alexander Novak said that Russia would not supply oil to the world market if a price cap is imposed, Interfax news agency quoted him as telling Russian television. “If these prices that they are talking about are lower than the cost of producing oil, then, of course, Russia will not ensure the supply of this oil to world markets. This means we are simply not going to work at a loss,” Interfax cited Novak as saying.
Earlier in the day, Putin had warned the world that oil prices would skyrocket if a cap were imposed.
An intense tug of war is being waged on the global crude horizon.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris.
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