Saudi Arabia and Russia plan deep oil cuts in defiance of US

Saudi Arabia is seeking to raise oil prices at a crucial meeting in Vienna, in a move set to anger the US and aid Russia.

Riyadh, Moscow and other producers are poised to 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 is still to be agreed but Saudi Arabia and Russia are pushing for reductions of 1mn-2mn barrels a day or more, although these could be phased in over several months. The reductions would probably trigger US countermeasures, analysts said.

“This is not the Saudi Arabia of old and the US has maybe been a little slow or unwilling to acknowledge that in energy matters,” said Raad Alkadiri, an analyst at Eurasia Group.

“If they want a higher oil price, they’ve clearly indicated they’re going to pursue that, even if it results in a tit-for-tat response from the US.”

Wednesday’s meeting of Opec members plus other producers was hastily convened at the cartel’s headquarters in Vienna, with ministers rushing to the Austrian capital for what analysts have billed as the most important gathering in years.

Opec+ producers worry that the price cap planned only for Russia now could later become a precedent for wider use against other producers

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

A person familiar with the discussions said the cuts would be made from existing production, not quota levels that some Opec+ member countries have been unable to fulfil after years of mismanagement and under-investment.

Such a cut is likely to have a big impact on prices, which fell over the summer in a fillip to the electoral chances of President Joe Biden’s Democrats in US midterm elections next month.

Prices remain high by historical standards and, with the likelihood of a large production cut becoming clear, Brent crude, the international benchmark, rose to $91.50 a barrel on Wednesday — up 8 per cent since last week.

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 triggered by Russia’s invasion of Ukraine.

Riyadh and Moscow have stepped up pursuit of production cuts to halt the slide in oil prices, which have fallen from about $120 a barrel in early June, a drop that has hit Russian state revenues.

The US wants to restrict Russia’s oil revenues to starve its military of funding, making Saudi Arabia’s co-operation 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 was likely to turn its attention to disrupting oil markets, having already cut most of its gas supplies to Europe.

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

The risk of further US-Saudi strains comes more than two months after Biden travelled to Jeddah to meet Crown Prince Mohammed bin Salman and said the kingdom would “take additional steps” to increase oil supplies.

The White House’s efforts to lower US petrol prices included months of shuttle diplomacy with Gulf oil producers, calls for US shale producers to increase supply and releases of oil from emergency stockpiles.

Just last week, Brett McGurk and Amos Hochstein, two senior Biden administration officials, visited Saudi Arabia in the latest of a series of bilateral meetings.

In August, US energy secretary Jennifer Granholm told refiners to build domestic inventories rather than exporting more fuel. She warned that the US government was otherwise prepared to “consider additional federal requirements or other emergency measures”.

The Biden administration has been weighing restrictions on exports of refined petroleum products — and has discussed the possibility with oil companies — according to people familiar with the discussions. A significant Opec+ supply cut would increase the likelihood of such a move, the people said.

The US oil industry’s main lobby groups on Tuesday urged Granholm to “disavow” any potential restrictions, warning they would further drive up prices in the US and internationally.

During a briefing with reporters, White House press secretary Karine Jean-Pierre said the administration would not comment on any Opec+ moves in advance.

She added that the US would focus “on taking every step to ensure markets are sufficiently supplied to meet demand for a growing global economy”. Jean-Pierre said the US was not considering new releases from the country’s Strategic Petroleum Reserve after selling off tens of millions of barrels from the stockpile this year in a bid to reduce energy prices.

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

“Opec+ producers worry that the price cap planned only for Russia now could later become a precedent for wider use against other producers,” said Bob McNally, head of Rapidan Energy Group and a former adviser to the George W Bush White House.

Amin Nasser, the chief executive of state oil company Saudi Aramco, warned on Tuesday that the market was too focused on the demand impact of a possible recession rather than the limitations of current supply.

Additional reporting by James Politi and Felicia Schwartz in Washington and Myles McCormick in New York