The prices of the black liquid declined on Wednesday by the most in nearly two years after the United Arab Emirates, a member of the Organization of Petroleum Exporting Countries and its allies, stated that it supported pumping more oil into the market as prices rose to multiyear highs, caused by supply disruptions due to sanctions on Russia after it invaded Ukraine.
The global benchmark, the Brent crude futures closed the day bearish by 13.2%, ending Wednesday’s trading session at $111.14 a barrel, their biggest one-day decline since April 21, 2020. The United States benchmark, the West Texas Intermediate (WTI) crude futures ended bearish by 12.5%, ending Wednesday’s trading at $108.70 a barrel, the benchmarks biggest daily decline since November.
Ambassador Yousuf Al Otaiba said in a statement tweeted by the UAE Embassy in Washington, “We favor production increases and will be encouraging OPEC to consider higher production levels.” The UAE and neighbour Saudi Arabia are among the few members of the OPEC+ with spare capacity that could increase output.
What you should know
- In an attempt to cool down rising oil prices, the United States has called on oil producers worldwide to increase production if they can. U.S. Energy Secretary Jennifer Granholm told attendees at an industry event in Houston that “In this moment of crisis we need more supply. Right now we need oil and gas production to rise to meet current demand.”
- Additional supply from OPEC+ could compensate for some supply shortfalls created by disruption to Russia’s oil sales by economic sanctions imposed by the United States and other governments.
- Bob Yawger, director of energy futures at Mizuho stated, “That (potential output hike) is not nothing. They (UAE) can probably bring about 800,000 barrels to the market very quickly, even immediately, bringing us one-seventh of the way there in replacing Russian supply.”
- OPEC’s language shifted this week when its Secretary-General Mohammed Barkindo said supply is increasingly lagging behind demand. Just a week ago, the OPEC+ blamed surging prices on geopolitics rather than any lack of supply and decided against increasing output any faster.
- OPEC+, which includes Russia, has been targeting an increase in output of 400,000 barrels per day every month and had resisted demands from the United States and other consuming countries to pump more.
- Russia is one of the world’s top exporters of crude and fuel, shipping around 7 million bpd or 7% of global supplies.
IEA chief Faith Birol stated, “If there’s a need, if our governments decide so, we can bring more oil to the markets, as one part of the response.” Birol said the IEA decision last week to release 60 million barrels of oil from strategic reserves was “an initial response.”
U.S. Strategic Petroleum Reserve levels fell last week to their lowest since July 2002, as the Biden administration had already approved releases in November as part of a larger effort to boost the U.S. fuel supply.
