UAE to back Saudi Arabia and Russia to cut output

The UAE is likely to back sharp output cuts proposed by Saudi Arabia and Russia at the OPEC+ meeting on Wednesday in a blow to U.S. efforts to block the deal.

The UAE was involved despite last-minute efforts by the United States and other Western powers to persuade the country to withdraw from the deal, two people familiar with the discussions ahead of the meeting said.Gulf states are among the most influential members OPEC+ Outside of Saudi Arabia and Russia.

“Although they respect their [the US] think the group needs to do what is in their best interest,” a Gulf OPEC source said Wednesday ahead of the meeting, where the group is expected to announce plans to cut output by 1 million to 2 million bpd or more.

The United States and other Western powers opposed to trying to raise oil prices have reached out to the UAE, the source added. The White House said it believed the cuts were unnecessary and at a perilous time for the world economy as it grappled with an energy crisis sparked by Russia’s full-scale invasion of Ukraine.

The risk of a recession could lower oil prices, UAE Energy Minister Suhail al-Mazrouei said on Wednesday, one of the factors driving the OPEC+ decision.

“[Opec+] Still a technical organization, it is very important that this decision is still technical and not political,” Mazrouei said.

“Based on that, we will make the right decisions as we see fit. The recession is a challenge . . . one of the fundamental factors that we are all looking at.”

Any output cuts could trigger a White House reaction if prices rise ahead of the crucial midterm elections in November.

Bob McNally, a former energy adviser in the George W. Bush administration, said the Biden administration would be genuinely outraged if Saudi Arabia led the group to slash production to push up prices.

“The first thing that stabilized Democrats ahead of the midterms was the drop in gasoline prices. Going back to this spring when oil was $120, they were like waiting for the execution, but the price drop gave them a temporary relief.”

“Now that they face the prospect of their allies pushing oil prices higher again, they are unlikely to sit idly by if prices rise sharply in the coming weeks and months.”

Helima Croft, a former CIA analyst and head of commodities research at RBC Capital Markets, said late Tuesday that the White House will try to rely on its allies in the Gulf.

“We think Washington’s response to tomorrow’s decision absolutely needs to be watched closely, with administration officials reportedly working around the clock to avoid deep cuts, calling on countries with which it maintains strong defense and strategic ties [with],” Croft said.

If oil prices rise sharply, potential responses include releasing additional barrels from the U.S. Strategic Petroleum Reserve — although the White House has said this is not imminent — or seeking to limit U.S. refined oil exports in an attempt to drive down domestic prices.

Brent crude, the international benchmark, traded around $91.50 a barrel on Wednesday, up more than 7 percent for the week after OPEC+’s plans to cut production sharply became clear.

Since March 2020, OPEC+ meetings have been moved from virtual to face-to-face at the last minute at the group’s Vienna headquarters.