Economy

UAE set to support Saudi Arabia and Russia on oil output cuts

The UAE is likely to support substantial oil production cuts proposed by Saudi Arabia and Russia at Wednesday’s Opec+ meeting in a blow to US efforts to try to stop the deal.

Two people familiar with the discussions ahead of the meeting said the UAE was onboard despite a last-minute effort by the US and other western powers to talk the nation out of the deal. The Gulf state is among the most influential members of Opec+ outside of Saudi Arabia and Russia.

“While they respect their [the US] opinion the organisation needs to do what is in their best interests,” one Gulf Opec source said on Wednesday ahead of the meeting, where the group is expected to announce plans to reduce output by 1mn-2mn barrels a day or more.

The source added that the UAE had been contacted by the US and other western powers that oppose efforts to try and boost oil prices. The White House has indicated that it believes the cuts are unnecessary and come at a dangerous time for the world economy as it grapples with an energy crisis triggered by Russia’s full-scale invasion of Ukraine.

Suhail al-Mazrouei, the UAE energy minister, said on Wednesday that the risk of a recession, which could lower oil prices, was one factor that would drive Opec+’s decision.

“[Opec+] remains a technical organisation and it is very important the decision remains technical and not political,” said Mazrouei.

“Based on that we will take the right decision we see fit. A recession is a challenge . . . one of the fundamental factors we are all looking at.”

Any cut in production is likely to trigger a response from the White House if it results in a rise in prices ahead of crucial midterm elections in November.

Bob McNally, a former energy adviser to the George W Bush administration, said there would be real anger in the Biden administration if Saudi Arabia leads the group in a substantial cut that boosts prices.

“The number one thing that has steadied the Democrats’ ship ahead of the midterm elections is the decline in gasoline prices at the pump. Back when oil was at $120 this spring, it was like they were waiting for an execution, but the fall in the price gave them a reprieve.”

“Now they face the prospect of an ally pushing the price back up again, they’re unlikely to stand idly by if oil prices rise sharply in the coming weeks and months.”

Helima Croft, a former CIA analyst and head of commodities research at RBC Capital Markets, said on Tuesday evening that the White House would be working hard to lean on its allies in the Gulf.

“We believe the Washington response to tomorrow’s decision will absolutely require close watching and administration officials are reportedly working around the clock to stave off a big cut, appealing to countries that it maintains strong defence and strategic ties [with],” said Croft.

Potential responses if oil prices rise substantially include releasing additional barrels from the US Strategic Petroleum Reserve — though the White House has indicated this is not imminent — or looking to curb refined product exports from the US to try and keep domestic prices down.

Brent crude, the international benchmark, was trading around $91.50 a barrel on Wednesday, having risen more than 7 per cent this week after the Opec+ plans for a large cut became clear.

The Opec+ meeting was switched at the last minute from online to in-person at the group’s headquarters in Vienna for the first time since March 2020.

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