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Oil prices fall after UAE says it wants OPEC to increase production

The UAE ambassador to Washington, Yousef Al Otaiba, told CNN on Wednesday that the country wants to increase oil production and will encourage the Organization of the Petroleum Exporting Countries (OPEC) cartel to increase supply.

Otaiba’s comments sent oil prices dropping like a rock on Wednesday. US oil fell 12% to below $109 a barrel. Brent crude, the global benchmark, fell 13% to $111 a barrel. It marked their steepest one-day drop in nearly two years.

If the UAE convinces its partners to turn on spigots, it will mark a change As for the cartel, last week’s meeting with allied producers – a group known as OPEC+ – agreed to stick with a plan to gradually add oil to the market, despite pressure from other economies. Developed economies must do more to reduce prices.

A key issue for the Saudi-led group: Russia is one of those allied producers.

Last Wednesday, OPEC+ said in a statement that it would increase production by 400,000 bpd in April – a fraction of Russia’s 10 million bpd. The cartel has called the market “well balanced,” even though oil prices have surged 30% in the past two weeks.

“The UAE has cracked. They’re one of the last holders,” Robert Yawger, vice president of energy futures at Mizuho Securities, told CNN. “Now that they’ve said it, you can expect the Saudis to say the same thing.”

Goldman Sachs says the world may be facing one of its biggest energy shocks ever

The Biden administration on Tuesday banned imports of Russian crude oil and natural gas, but Europe, which gets more energy from Russia than the United States, does not. However, sanctions against Russian banks and concerns about the country’s ability to transport oil have led to a shadow ban on the country’s energy sector, dramatically reducing Russia’s oil supply. supply to the global market.

The West had hoped it could add oil from other sources, including from OPEC members Iran and Venezuela.

Before sanctions were imposed on Iran, it produces about 4 million barrels per day. But the US’s return to the nuclear agreement with this country has proved to be elusive. The United States has also begun discussions with Venezuela, whose crude oil was sanctioned in 2019. But the economically depressed South American country wasn’t producing much oil even before the ban.

In contrast, OPEC has the ability to rapidly increase supply because Saudi Arabia and the UAE have excess production capacity.

“We support increasing production and would encourage OPEC to consider higher production levels,” Otaiba said.

The UAE Ministry of Energy has not yet issued a statement, but Otaiba’s comments were later posted on Twitter by the country’s embassy in Washington. It marks the first hint that an OPEC country may be willing to keep oil prices from rising out of control. Some economists worry that motorists, airliners and businesses could start change their buying behavior If oil goes higher, it is likely to hurt the global economy.

“The UAE has been a reliable and responsible energy supplier to global markets for over 50 years and believes that stability in energy markets is vital to the global economy,” said Otaiba. bridge”.

Europe will no longer rely on Russia

The shift in tune from OPEC may have stemmed from a sense of a unique opportunity. It could cause Europe to stop supplying Russian oil and keep it buying OPEC crude.

“The UAE is essentially saying to Saudi Arabia and Kuwait: Use our spare capacity so that Europeans no longer have to depend on them,” said Andy Lipow, president of consulting firm Lipow Associates. Russia too”.

“This is a 180-degree shift,” Lipow said, referring to the market’s interpretation of OPEC’s stance.

Lipow added that OPEC leaders are likely to recall what happened in 2008 when oil spiked above $145 a barrel, only to crash a few months later as the world economy collapsed in the wake of the crisis. financial crisis.

“You can turn the world into a recession,” says Lipow.

A sharp drop in oil prices improves the outlook for prices at the pump. The national average rose to a record $4.25 a gallon on Wednesday, a staggering 60 cents in a week, according to AAA.

Instead of hitting $4.50 a gallon, Lipow said current oil prices suggest the national average could hit around $4.35 a gallon.

– CNN’s Matt Egan contributed to this report

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