Saudi Arabia is moving towards a push for a small increase in oil production when the Opec+ group meets later on Wednesday, as it looks to bolster an improvement in relations with western powers in recent weeks.
Four people briefed on the kingdom’s thinking said a small production increase was becoming the most likely outcome in the wake of Crown Prince Mohammed bin Salman’s welcome in France last week and following US President Joe Biden’s trip to Jeddah in July.
Western countries have called on Saudi Arabia and its Gulf allies to raise oil production to help address the cost of living crisis, but Riyadh has responded cautiously, not wanting to burn through limited spare capacity while there are signs demand for oil is cooling as economies flirt with recession.
Saudi Arabia faces a difficult balancing act as it aims to rehabilitate the crown prince, the kingdom’s de facto ruler and heir to the throne, with western allies who had sought to distance themselves after the murder of journalist Jamal Khashoggi four years ago.
But it also has to manage its relationship with Russia, which has partnered with the Opec group Saudi Arabia leads since 2016, as Moscow faces a series of sanctions targeting its oil exports later this year in response to its invasion of Ukraine.
Two people said Saudi Arabia was also concerned about securing grain supplies for the wider Middle East with rising prices and warnings of potential shortages feeding Riyadh’s fear of another spate of popular uprisings in the region such as those of 11 years ago.
One source said French president Emmanuel Macron was trying to broker an arrangement to ensure wheat and grain supplies, which he discussed with the crown prince in Paris last week, while pushing for higher oil output.
France said it would continue to develop the so-called Farm initiative it had championed with the G7 to help with wheat supplies for vulnerable countries following Macron’s meeting with the crown prince.
The Gulf states have also been looking for more military support and co-operation from Washington.
On Tuesday the US state department, which has been leading Biden’s efforts to lower energy prices globally, approved the potential sale of missiles needed to rearm US-supplied defence systems in Saudi Arabia and the United Arab Emirates.
US officials have said they are “optimistic” of an announcement at Wednesday’s Opec+ meeting.
But people briefed on Saudi Arabia’s thinking have tried to play down the extent of any production increase. The kingdom is already pumping close to 11mn barrels a day of crude and its maximum capacity is about 12mn b/d. There are questions in the oil industry over how long that level could be maintained.
Getting an agreement for a production increase may still prove complicated for Saudi Arabian energy minister Prince Abdulaziz bin Salman, who is the half-brother of the crown prince.
Any increase in the Opec+ production target is expected to be less than 500,000 b/d and may not lead to substantial volumes of additional oil on the market.
Many Opec members are already struggling to hit their own production targets after years of under-investment and mismanagement, so would not stand to benefit from higher volumes and may lose out if prices fall.
The group could still decide to hold off on any changes to production targets, according to three people familiar with the discussions.
One potential option is keeping the group’s total production target intact but allowing countries such as Saudi Arabia and the UAE, the only ones with spare production, to effectively backfill for members struggling to reach their goal.
Oil prices have already dipped from recent highs. After trading near $120 a barrel in June, Brent crude, the international benchmark, has fallen back towards $100.
Petrol prices in the US, a focus for Biden ahead of midterm elections in November, have followed crude prices south.
Russia, which has grown more dependent on its relationships in the Middle East as western powers have sought to isolate Moscow, agreed that Opec+ should accelerate production increases in July and August as they unwound the last of the production cuts made at the height of Covid lockdowns.
The G7 said on Tuesday that it remained committed to trying to cap Russia’s oil revenues in response to its invasion of Ukraine. Sanctions targeting Russia’s ability to export its oil are expected to come into force this year unless a deal to sell its oil at below market rates can be agreed, helping keep global markets well supplied while limiting revenues flowing to the Kremlin.
Additional reporting by Sarah White in Paris
