Saudi Arabia and Russia plan deep oil cuts against US

Saudi Arabia seeks to hike oil prices at crucial meeting in Vienna to anger US and help Russia.

Riyadh, Moscow and other producers will announce deep cuts at a meeting of the Opec+ cartel on Wednesday, according to people with knowledge of the discussions.

The size of the cut has yet to be agreed, but Saudi Arabia and Russia are pushing for cuts of 1-2 million barrels a day or more, although these could be phased in over several months. The move would likely trigger U.S. countermeasures, including the additional release of oil from the country’s Strategic Petroleum Reserve, analysts said.

“This is not the old Saudi Arabia and the US may have been a bit slow or unwilling to acknowledge that on energy issues,” said Raad Alkadiri, an analyst at Eurasia Group.

“If they want a higher oil price, they have clearly indicated that they will seek that, even if it leads to a US backlash.”

Wednesday’s meeting of Opec members and other producers was hastily convened at the cartel’s headquarters in Vienna, and ministers rushed to the Austrian capital for what analysts have called the most important meeting in years.

Russia’s top energy official, Alexander Novak, is expected to attend and support a significant production cut as Russia’s oil is already trading at a deep discount as European buyers have turned away.

A person familiar with the discussions said the cuts would come from existing production, not quotas that some Opec+ member countries have been unable to meet after years of mismanagement and underinvestment.

Such a cut is likely to have a major impact on prices, which have fallen over the summer on President Joe Biden’s Democratic chances of winning next month’s US midterm elections.

Prices remain high by historical standards and as the likelihood of a large production cut becomes clear, Brent crude oilthe international benchmark, rose to over $90 a barrel on Tuesday – up 7 percent since the weekend.

Tensions between Saudi Arabia, the world’s largest crude oil exporter, and the US, the world’s largest consumer, come as analysts warn of a deepening global energy war sparked by Russia’s invasion of Ukraine.

Both Riyadh and Moscow have stepped up efforts to cut production to stem the fall in oil prices, which fell from around $120 a barrel in early June – a fall that has hurt Russian government revenues.

The US wants to cut Russia’s oil revenues to starve out military funding, making Saudi Arabia’s continued cooperation with Moscow a source of tension between Riyadh and the White House.

Helima Croft, a former CIA analyst and head of commodities research at RBC Capital Markets, said Russia is likely to turn its attention to disruptions in oil markets, having already halted most of its gas supplies to Europe.

“We think there will be more asymmetric, disruptive acts coming as we head into winter,” she said.

The risk of further US-Saudi charges also remains two and a half months after Biden traveled to Jeddah to meet Crown Prince Mohammed bin Salman and said the kingdom would “take additional steps” to increase oil supplies.

White House efforts to slash US gasoline prices have included months of shuttle diplomacy with Gulf oil producers, demands for US shale producers to increase supply and the release of oil from emergency stockpiles.

In August, US Energy Secretary Jennifer Granholm urged refiners to build up domestic inventories instead of exporting more fuel. She warned that otherwise the US government is prepared to “consider additional federal requirements or other emergency measures.”

During a briefing with reporters on Tuesday, Biden’s press secretary, Karine Jean-Pierre, said the White House would not comment ahead of time on Opec+ moves. She added that the US would remain focused on “taking all steps to ensure markets are adequately supplied to meet demand for a growing global economy.”

But the US and other G7 countries plan to try to impose a price cap on Russian oil sales later this year, a move that could result in lower supplies from the country alongside a tightening of European sanctions on Moscow in December.

“Opec+ producers are concerned that the now-Russia-only price cap could later become a precedent for broader adoption over other producers,” said Bob McNally, head of the Rapidan Energy Group and former White House adviser to George W. Bush.

Amin Nasser, chief executive of state-owned oil company Saudi Aramco, argued on Tuesday that the market is too focused on the impact of a potential recession on demand rather than the constraints on current supply.

https://www.ft.com/content/476d8174-1ad5-4dbe-8092-37853b2a7673 Saudi Arabia and Russia plan deep oil cuts against US

Adam Bradshaw

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