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Oil prices fell from 14-year highs as the UAE proposed that the Opec+ alliance increase oil production at a faster pace than its current monthly target in an effort to ease market volatility.
“We favour production increases and will be encouraging Opec to consider higher production levels,” Yousef Al Otaiba, the UAE's ambassador to the US, said.
“The UAE has been a reliable and responsible supplier of energy to global markets for more than 50 years and believes that stability in energy markets is critical to the global economy.”
Also on Wednesday, the UAE Minister of Energy and Infrastructure Suhail Al Mazrouei said the Emirates is committed to the existing agreement by the 23-member Opec+ alliance of oil producers led by Saudi Arabia and Russia, which ramps up oil supply by 400,000 barrels per day monthly.
“The UAE believes in the value Opec+ brings to the oil market. The UAE is committed to the Opec+ agreement and its existing monthly production adjustment mechanism,” Mr Al Mazrouei said on Twitter.
"There is no agreement [for the UAE] to increase production unilaterally outside the Opec+ agreement," he told the state-run news agency Wam.
For several months, Opec+ has worked to bring back 5.8 million bpd in production cuts, with another 400,000 bpd due in April, to restore supply that was greatly reduced after the onset of the Covid-19 pandemic in 2020. The alliance of producers achieved a historic reduction of 9.7 million bpd between May 2020 and July last year.
Brent, the global benchmark for two thirds of the world's oil, fell 13.20 per cent to $112 a barrel at the close of trading on Wednesday while West Texas Intermediate, the gauge that tracks US crude, retreated 12.15 per cent to $109.60 a barrel,
Both benchmarks remained above $100 a barrel on Thursday. Brent was up 2.6 per cent, trading at $114.4 a barrel at 8.25pm UAE time, while WTI was up 1.7 per cent at $110.6.
“The size of the moves, on relatively modest headlines, highlights the inherent volatility of oil markets at this time,” said Edward Bell, senior director of market economics at Emirates NBD.
“While the announcement from the UAE would help to alleviate pressure in oil markets, time spreads still show the perception of an enormously tight market. In Brent one to six-month spreads, the backwardation fell to only $15.59 a barrel overnight, still among its widest levels on record.”
Backwardation is where prices for immediate delivery are higher than those for future supply.
Oil prices are up by about 100 per cent since last year and have rallied more than 25 per cent since the start of this year, driven by a faster-than-expected economic recovery and also years of underinvestment in the energy industry after prices collapsed in 2014, which restricted the output capacity of some producers.
The outbreak of the Russia-Ukraine conflict has shaken markets further and the surge in energy prices could send the global economy into a recession.
Prices rallied further this week after the announcement of a British and American ban on Russian oil imports. Additional sanctions from western countries on Russia, the world's second-largest energy exporter, would lead to a 4.3 million bpd gap in the market, which cannot be quickly replaced by other supply sources.
That would create the largest potential oil supply shortage since the First Gulf War, when oil prices doubled, and lead to oil prices rising to $240 a barrel by this summer, said Bjornar Tonhaugen, head of oil markets at Rystad Energy.
The foreign ministers of Russia and Ukraine will hold talks in Turkey on Thursday, the first high-level contact between Kyiv and Moscow since Russia's military offensive in Ukraine began two weeks ago.
If a perceived breakthrough in the Ukraine-Russia meeting happens in Turkey today, both benchmarks will be back below $100 a barrel, said Jeffrey Halley, a senior market analyst at Oanda.
“However, the risks are skewed towards disappointment and evolving negative headlines from the Ukraine situation and/or Iran and/or Opec+, in which case, Brent crude will be back above $120 in the blink of an eye,” Mr Halley said.
Should EU-brokered indirect talks in Vienna revive the 2015 Iran nuclear accord, which the US unilaterally withdrew from, Iranian oil could come to the market and potentially boost exports by about a million bpd within a matter of months, once sanctions are lifted.
Iran has been exempt from production cuts under the Opec+ agreement because its crude output remains limited by US sanctions.
The US Energy Information Administration estimates that Iran’s production could return to full capacity, at 3.8 million bpd, if Washington lifts the sanctions.