Saudi Arabia and the UAE announce their willingness to increase their oil supplies in an escalation of the price war with Russia
The Kingdom of Saudi Arabia and the United Arab Emirates announced on Wednesday their willingness to increase their oil supplies by about one million barrels per day, in a move considered an escalation of tension between Riyadh and Moscow over oil prices.
The escalation in the oil war between Saudi Arabia and Russia is increasing on Wednesday, with Riyadh announcing its intention to increase its production capacity, in parallel with its ally Abu Dhabi’s assertion of its readiness to increase its supplies, which led to a decline in Oil prices Also affected by the spread of corona virus “Covid-19”.
Saudi Aramco said it would increase the maximum production capacity by one million barrels of oil per day.
In a statement posted on the Saudi Stock Exchange website, Tadawul, it stated that it had received “a directive from the Ministry of Energy to raise the level of maximum sustainable production capacity from 12 to 13 million barrels per day.”
While increasing production capacity usually requires years and investments in the billions of dollars, Aramco President Amin Al-Nasser said that the company “is working at full capacity to implement this directive quickly,” without specifying a timetable for that.
The move came a day after Saudi Arabia, the world’s largest oil exporter, announced to significantly increase production to 12.3 million bpd in April from the current 9,8 million bpd.
Saudi Arabia maintains strategic reserves of tens of millions of barrels of crude oil, and it is expected to resort to it to cover the amount of oil that exceeds its maximum production capacity next month, which is 300 thousand barrels per day.
In the past, the Kingdom has backed away from plans to increase its maximum production capacity in light of the reduced demand for oil in the Organization of Petroleum Exporting Countries (OPEC) countries, against the backdrop of fierce competition with US oil and other sources.
The “OPEC” group, led by Saudi Arabia, Russia and other oil countries, has in the past two years cut production to raise the declining oil prices since 2014, within the framework of cooperation under the name of “OPEC Plus”.
Saudi Arabia, during a meeting in Vienna this month, called for an additional 1.5 million barrels reduction to counter the sharp drop in prices on the back of the spread of the Corona virus, but Russia refused.
In response to the Russian position, Saudi Arabia reduced its oil prices to its lowest levels in 20 years, in an attempt to acquire a large market share, which sparked turmoil in the energy markets and a raging price war.
While oil prices have witnessed the largest decline since the Gulf War in 1991, analysts warn that this step will continue to push prices down about $ 20 a barrel if the two sides do not reach an agreement.
Emirates enters the front line
Russian Energy Minister Alexander Novak said Tuesday that Moscow may boost production in the short term, but at the same time it has opened the door to the possibility of new talks with the kingdom.
For his part, President Vladimir Putin on Wednesday expressed his confidence that his country’s economy will overcome the consequences of the ongoing oil war since last Friday and will emerge from it “stronger”.
But the UAE, Saudi Arabia’s ally, entered the front line on Wednesday, announcing its willingness to increase oil supplies by about one million barrels per day in April.
The government “ADNOC” group said in a statement that it “has the potential to supply the markets with more than four million barrels per day in next April”, that is, more than one million barrels of the current daily production rate.
The company also stated that it is “working to accelerate progress towards our goal of achieving a production capacity of five million barrels per day.”
Emirati Energy Minister Suhail Al Mazroui wrote on Twitter that the strengthening of supplies will be “quickly due to the current circumstances”, calling for a “new agreement” between OPEC countries and Russia “to maintain market stability.”
Oil prices fell on Wednesday after the Kingdom announced its intention to increase its maximum production capacity, and the price of Texas crude fell by 1.7 percent at midday to $ 33, while Brent crude declined by the same to 36 dollars.
Oil prices directly affect the Saudi economy and other Gulf economies that depend heavily on their revenue from crude sales.
And financial markets in these countries suffered major losses on Sunday and Monday against the backdrop of declining prices, but returned and recovered Tuesday and Wednesday.
Energy consultancy Oxford Economics said that the price of crude will drop again and remain at $ 30 for a long time, indicating that the Gulf countries will again be forced to take austerity measures similar to those they did when the prices collapsed in 2014.
She warned that the current situation “may cause economic stagnation in countries in the Gulf Cooperation Council, suffering mainly from the global economic slowdown and the consequences of the spread of the Corona virus.”
For its part, Capital Economics expected that the expected deficit in the Saudi budget for the current year in GDP will increase from 6 percent today to 15 percent.