After Biden Rehabs MbS’ Image, Saudis Announce Increase In Oil Production Capacity

July 16, 2022   |   Tags:
After Biden Rehabs MbS' Image, Saudis Announce Increase In Oil Production Capacity

After Joe Biden's red carpet fist bump with the "pariah" it appears Crown Prince Mohammed bin Salman got what he wanted - namely the necessary optics of being deemed "back in" with Washington and having his blood stained reputation rehabilitated on a global stage, signaling that everyone can finally "get over" the heinous murder of Jamal Khashoggi... and now it seems MbS is following through with his part of the quid pro quo, on Saturday announcing the kingdom will increase its oil production capacity to 13 million barrels per day.

Speaking at Saturday's Jeddah summit of Middle East leaders the day following his closed-door meeting with Biden, MbS stressed investing in fossil energy but according to "clean techniques" - saying at a moment the war in Ukraine and resulting oil supply crisis is on everyone's minds (or rather the soaring price boomerang in the wake of the West seeking to "punish" Putin), "It’s important to reassure investors that the policies adopted don’t threaten their investments, to avoid discouraging them from investing causing a shortage in energy supplies."

"The kingdom has announced an increase in its energy capacity to 13 million barrels a day. After that the kingdom will have no further capacity to increase production," the Saudi ruler unveiled, per Bloomberg.

Saturday Jeddah summit, via Saudi Press Agency (SPA)

With the US administration having provided the 'wayward' crown prince a rehabilitating photo op, Biden too now has enough to claim 'victory' and return home proclaiming an ease to the supply problem.

Though it remains that not everyone is buying it, even in the mainstream media, with for example The Washington Post, Khashoggi's former employer, on Friday slamming Biden for the "shameful" fist-bump, writing in a statement that it "projected a level of intimacy and comfort that delivers to MBS the unwarranted redemption he has been desperately seeking."

And a key distinction that will without doubt get lost in the forthcoming White House talking points...

The evening prior to MbS' capacity increase announcement, the kingdom's foreign minister Adel al-Jubeir pledged that his country is "committed to stabilizing international oil markets and making sure that the markets are adequately supplied with crude oil." The statement followed Biden's evening meetings with King Salman bin Abdulaziz and Crown Prince Mohammed bin Salman.

"We do that by consulting with our Opec and Opec+ partners to assess whether there is a need to bring more oil onto the markets," al-Jubeir said. "These assessments will be made based on what the market needs are. If there is a market need, there will be steps taken to ensure that those needs are met."

Just ahead of touching down in Jeddah, Biden appeared to ramp up the pressure on Riyadh, saying he expects the kingdom to take "further steps" to increase oil output in the "coming weeks".

Seeking to push back against Washington pressure, FM Jubeir had cautioned

"Oil is not a political weapon, oil is not a tank," said state minister for foreign affairs Adel al-Jubeir. "You cannot point it at someone and fire. Oil is a commodity." He said the kingdom had increased output at various times this year based on demand, and would continue to reassess. "If you say did we promise more oil it means that we see a shortage in oil," he added. "If we see a shortage in oil, there will be more oil produced."

Not a "political weapon" perhaps, but apparently it can cover a multitude of sins.

Or rather to fix the image...

It remains, however, that the crown prince actually did offer some push back when Biden inquired of Jamal Khashoggi's killing and 'accountability'.

CNN confirms that MbS "hit back" against soft accusations leveled by Biden: "In response to Biden bringing up Khashoggi, MBS cited the sexual and physical abuse of prisoners at Iraq’s Abu Ghraib prison by US military personnel and the May killing of Palestinian-American journalist Shireen Abu Akleh in the occupied West Bank as incidents that reflected poorly on the US, the source said."

Biden asked Saudi Arabia Crown Prince Mohammad Bin Salman about Jamaal Khashoggi. MBS reportedly responded: "What about Shireen Abu Akleh?"

For some context, Statista's Katharina Buchholz details below, that Saudi Arabia in the past three years only approached its declared maximum production capacity of 12 million barrels per day in one month, casting doubts on the kingdom’s ability to quickly up its production to stabilize world markets. 

According to Bloomberg, such predictions have come from UAE leadership, who together with the Saudis are the only OPEC members who have spare production capacity – at least on paper.

You will find more infographics at Statista

Up until now, the Gulf kingdom and its OPEC allies have been reluctant to make major changes as a result of the Russian invasion of Ukraine. OPEC stuck to its slow production increases that were scheduled to reverse Covid-era cuts between March and June, and only recently agreed to up production quotas faster in the coming months in the light of the dramatic world market developments. Saudi Arabia’s OPEC production quota for August 2022 stands at 11 million barrels a day – more than it has been in a long time and still a whole million barrels a day below the country’s elusive maximum quota.

As seen in data by the organization, Saudi Arabia has remained below its production quota prior to the Covid-19 epidemic and only once approached its declared maximum production capacity in April 2020 amidst a row with Russia that saw production quotas go out the window. The following months, the kingdom stood down, accepting lower production quotas than its rival on a voluntary basis. If the Saudis can in fact produce more, they might also not want to.

Driving oil production to the edge of what is possible globally holds an inherent risk should another disruption, like it happened recently in Libya due to political unrest, should occur. Since that disruption can then not be compensated at all, it could cause an even more drastic jump in oil prices.

Tyler Durden Sat, 07/16/2022 - 11:00