All eyes are on whether Saudi Arabia will increase its crude production if Russian production drops significantly following European Union oil sanctions.
Andrei Rudakov | Bloomberg | Getty Images
Oil prices fell on the back of a report that Saudi Arabia is ready to increase crude production if Russia’s output falls significantly following European Union sanctions.
The Financial Times reported, citing sources, that Saudi Arabia is aware of the risks of supply shortages and that it is “not in its interest to lose control of oil prices”.
Oil prices fell in the morning hours of trading in Asia. International benchmark Brent crude futures were last down 1.68% at $114.34 a barrel. U.S. crude futures fell 1.87% to $113.10 a barrel.
EU leaders agreed on Monday to ban 90% of Russian crude by the end of the year as part of the bloc’s sixth sanctions package against Russia since it invaded Ukraine. This initially drove up oil prices.
Sources told the FT that Saudi Arabia, the de facto leader of OPEC, has yet to experience any real shortages in oil markets. He has so far ignored pressure from Washington to accelerate production increases as oil prices have soared this year.
But that could change as global economies reopen amid the pandemic recovery, boosting demand for rough.
That would include China, the world’s biggest oil importer, where major cities are starting to ease restrictions as daily Covid cases decline.
“Although this is not an outright promise, Saudi Arabia [has] apparently threw the West a bone,” Matt Simpson, market analyst at UK-based trading platform City Index, wrote in a note after the news.
“This will be welcomed by Western leaders given that inflation – and inflation expectations – remain extremely high, and central banks are trying to raise rates at the risk of tipping their economies into recession,” he said. he added.
The FT report comes ahead of a monthly meeting of the OPEC+ alliance on Thursday, of which Russia is a part. Russia is the world’s second largest exporter of crude oil behind Saudi Arabia.
Meanwhile, some OPEC+ members are also considering suspending Russia from an oil production deal, The Wall Street Journal reported, citing unnamed OPEC delegates.
OPEC delegates are reportedly concerned about growing economic pressure on Russia and its ability to pump more crude to cool soaring prices.