US President Joe Biden toured the Middle East in the shadow of declining popularity, inflation that reached an annual rate of 9.1%, and oil prices that overshadowed the effects of the Russian invasion of Ukraine in May to more than $ 120 to Benchmark Brent, and to a peak of more than $ 5 per gallon in the US. Therefore, it aims to bring Saudi Arabia, the country with the largest oil production rate in OPEC Plus (25% of all oil-producing countries) and the main US oil exporter (5% of total imports), in a row that will lead to lower US fuel prices Ahead of the midterm elections on November 8.
And today, at the conference attended by the President of the United States in Jeddah, he achieved a partial victory. The Crown Prince of Saudi Arabia, Muhammad bin Salman, pledged to increase production capacity to 13 million barrels of oil per day. In June, the Saudis produced 10.55 million barrels On the other hand, output capacity does not necessarily have a direct impact on the amount of production, which is what could actually lead to a significant turning point in oil and fuel prices.
Riyadh strives to help Washington, but in a measured way
“The kingdom has announced an increase in production capacity to 13 million barrels a day,” said Prince Muhammad bin Salman in Jeddah. However, he noted that “the kingdom will not be able to reach a larger production than this.” At the summit in Jeddah, attended by leaders of the six Gulf Cooperation Council (GCC) alongside representatives of Egypt, Jordan and Iraq, the Saudi Crown Prince noted that concerted efforts are needed to aid the global economy, and called for an unrealistic policy on further sources of energy. Rising inflation around the world: “Adopting unrealistic policies to reduce emissions by removing the use of major energy sources will in the coming years lead to unprecedented inflation, rising energy prices and unemployment rates, as well as exacerbating social and security problems.”
US President Joe Biden has achieved what he wants: Saudi Arabia’s Crown Prince Muhammad bin Salman has announced that his country will work to increase oil production to 13 million barrels a day. This is an increase of about 2.5 million, after 10.55 million in June. The Saudis have no capacity beyond 13 ????????????????????????#SaudiArabia #Russia #Ukraine@globesnews pic.twitter.com/ITm3dmLZKL
– Dean Shmuel Elmas (@ElmasDean) July 16, 2022
The reason why Riyadh seeks to help Washington, but in a measured way, has to do with Moscow – and the weight of Russian oil out of the world market. In June, OPEC countries, the Organization of Petroleum Exporting Countries, produced 28.83 million barrels of oil per day, while Russia-led OPEC Plus companies reached 13.26 million barrels per day.
The Saudis are between a rock and a hard place
If the entire oil industry is segmented, then in June Saudi Arabia and Russia alone added 560,000 barrels a day to the market. Russia alone, despite Western sanctions, reached 9.75 million barrels a day in June – after 9.29 in May and 9.14 million in April. The reason that the same decline is only slight, despite Western sanctions, is a significant increase in Russian oil exports to the two most populous countries in the world: China and India.
Russia sold 1.98 million barrels of oil to China in May, becoming Beijing’s main supplier – bypassing Saudi Arabia. This is the culmination of a process in which Russia exported 1.59 million barrels a day in April and 1.5 March. At the same time, the volume of Russian oil exports to India reached 819,000 barrels per day in May, after 277,000 in April and only 33,000 in the corresponding period last year. In doing so, Russia overtook Saudi Arabia en route to second place in terms of oil exports to India, with only Iraq remaining above it. Russia’s oil, natural gas and coal sales to China and India totaled $ 24 billion in three months.
The Saudis, in fact, are between a rock and a hard place: on the one hand, they want to sell more oil with the encouragement of the United States, and on the other hand, Riyadh are not at all sure that they have the necessary infrastructure to withstand such intensity. From the fact that the Russians are bypassing them with significant export targets, however, on the other hand – it is not certain that they will want to harm the relatively stable cooperation with Russia, despite the mutual suspicion since the oil price war in 2020.
“It is important to note that the Saudis have stressed that they will increase the productivity of their oil, not the amount of production,” said Prof. Brenda Sheffer, an energy expert at the U.S. Navy University, told Globes. “The difference between the two is significant.”
It is possible that the fear of Moscow’s reaction is the main reason why the Prince of Saudi Arabia was content with partial news in the form of only increasing production capacity. On the contrary, as early as May, Energy Minister Prince Abd al-Aziz bin Salman announced that Saudi Arabia is working to increase its oil production to 13 million barrels a day by the end of 2026, or early 2027. Today, Saudi Arabia’s maximum output is 12 million. Barrels a day. “We will probably reach 13.3 or 13.4 at the end of the process,” the energy minister estimated.