Opec steps up oil production as Saudis cave to US pressure
THE oil cartel Opec will ramp up production in July and August after its biggest member, Saudi Arabia, caved to pressure from the White House as Russia’s invasion of Ukraine squeezes supplies and causes prices to soar.
Opec has agreed to increase output by 648,000 barrels of oil per day over the two months, up from a planned increase of 432,000 barrels amid fears that fresh sanctions on the Kremlin could fuel an energy shortage.
Saudi Arabia in particular has benefitted from inflated oil prices, with last month its Aramco national oil giant fleet- ingly surpassing Apple as the world’s most valuable company, which is worth more than $2.4 trillion (£1.9 trillion).
Oil has been largely trading above $100 per barrel since March, hitting a two-year high of $120 this week before settling to around $112.
With the cost of extraction in Saudi Arabia the lowest in the world, the country has been experiencing large inflows of profits and has resisted previous calls to increase production. While demand is high compared to supply, prices have not yet made new records.
The EU struck a deal with the UK on Tuesday to ban insuring ships carrying Russian oil, shutting Moscow out of the vital Lloyd’s of London market. Without insurance, oil tankers are unlikely to risk shipping the fuel to countries in which it has not been sanctioned, putting further pressure on production.
Russia is on course to suffer its deepest recession since the collapse of the Soviet Union as a result of sanctions.
According to government analysis, Russia’s economy is set to take a £256bn hit from sanctions, with its GDP expected to shrink up to 15pc this year.
Because of finite space, small increases in oil supply can have a large impact on prices. Russia produced about 10pc of the world’s oil before its war on Ukraine.
Opec’s decision comes after a sustained charm offensive from the White House, with senior diplomats leading a delegation to Saudi Arabia in recent weeks, the Financial Times reported.