Under pressure from the USA, Opec agrees to increase oil production
The deal comes at a time when tensions between the White House and the Saudi leadership are easing
Opec and its allies on Thursday agreed to increase oil production in July and August after Saudi Arabia, the cartel's fulcrum, caved in to US pressure to stem the rise in crude prices threatens to bring the global economy to a standstill.
The cartel said it would increase production by almost 650,000 barrels per day in both months, instead of about 400,000 barrels per day as planned.
The move came just days after the EU announced a partial ban on Russian oil imports, fueling fears of a global energy shortage as Moscow's invasion of Ukraine continues to unsettle markets.
Saudi Arabia and the United Arab Emirates, Opec's biggest producers, are likely to handle most of the supply expansion, with Riyadh earlier signaling it was ready to ramp up production to overcome Russian shortages.
The extra deliveries mark the first time the Saudi Arabian-led Opec+ cartel has backed away from a measured supply policy agreed upon during the deep slump in oil supplies caused by the coronavirus pandemic two years ago.
The White House welcomed the "important decision" and recognized Saudi Arabia for "achieving this consensus among group members". It also recognized the "positive contributions from the United Arab Emirates, Kuwait and Iraq".
The Opec decision came just weeks ahead of a planned visit to the Middle East by US President Joe Biden, which could also include a stopover in Riyadh despite difficult relations with Saudi Arabian ruler Crown Prince Mohammed bin Salman.
"Saudi Arabia is still working within the Opec+ framework to add some extra barrels under political pressure," said Amrita Sen of consultancy Energy Aspects.
Oil prices fell sharply in early trading on Thursday after the Financial Times first reported on a possible deal, and international benchmark Brent fell to a low of $112 a barrel from $116 a barrel at Wednesday's close.
After Thursday's session, however, prices edged up slightly, with Brent trading above $116 a barrel as analysts said the relatively modest supply increases may not be enough to calm oil markets, which have soared since Russia invaded Ukraine have risen to the highest level in a decade, fueling inflationary pressures around the world.
An expected agreement between the UK and the EU to ban insurance for ships transporting Russian oil could severely limit Moscow's exports later this year. Before invading Ukraine, Russia produced more than 10 percent of the world's crude oil reserves.
As a result of the Opec+ agreement, the increase in production that was already planned for September will be postponed to July and August. This effectively ends the two-year quota system that has helped oil prices surge nearly 500 percent since the bottom of the pandemic crash.
Saudi Arabia and other OPEC members remain concerned about the level of spare production capacity available and are reluctant to ramp up production too quickly amid fears that tight oil market conditions could turn into an outright shortage later in 2022 could expand.
Noting strong global oil demand in its statement after the meeting, Opec+ said it has "taken note of the recent resumption of lockdowns... and global refining inflows are expected to increase." The cartel's decision "underlines the importance of stable and balanced markets".
Weeks of shuttle diplomacy by White House top Middle East and Energy Envoys Brett McGurk and Amos Hochstein have paved the way for improved relations between Riyadh and Washington.
Biden has sought to keep the Saudi crown prince at a distance over his links to the murder of Washington Post journalist Jamal Khashoggi. However, the US is keen to improve ties with Saudi Arabia, as energy is a cornerstone of the bilateral relationship, which dates back to the end of World War II.