Saudi Arabia May Boost Production Ahead Of Price Cap On Russian Oil

Key Insights

• Saudi Arabia reportedly wants to increase oil production by as much as 500,000 bpd. 
• This increase will be discussed on December 4, ahead of the Russian oil price cap. 
• Russia’s reaction to Saudi Arabia’s plans remains unknown. 

OPEC+ May Boost Production By 500,000 Bpd To Substitute Russian Oil

WTI oil declined below the $76 level after Wall Street Journal reported that Saudi Arabia and other OPEC producers were discussing an output increase.

According to WSJ, OPEC may increase production by up to 500,000 bpd at the next meeting on December 4.

G7 countries, in its turn, will impose a price cap on Russian oil on December 5. Russia has previously stated that it would not supply oil to countries that participate in the price cap scheme.

Put simply, OPEC may increase production to substitute Russian oil. Russian oil exports are expected to decrease after G7 meeting, when Russia will lose access to Western transportation and insurance services.

Russia’s Reaction Remains Unknown

Any production increase should be supported by OPEC+ members at the following meeting. As a key OPEC+ member, Russia must agree to the production increase that will substitute its oil.

IEA expects that Russian oil production could fall below 10 million bpd in 2023. In October 2022, Russia produced 10.78 million bpd. If IEA forecast is correct, oil supply would decline even if OPEC+ boosts production by 500,00 bpd.

In addition, it remains to be seen whether OPEC+ countries will be ready to boost production. Many OPEC+ members fail to meet their quotas due to production problems. If OPEC+ agrees to a production boost, the majority of this boost would be delivered by Saudi Arabia and UAE.

While OPEC+ may face some problems on the way to higher production, oil traders are focused on Saudi Arabia’s readiness to increase production at a time when Russia is losing its market share.

Traders are waiting for Wednesday, when G7 countries plan to announce the price cap on Russian oil. This announcement may have a significant impact on oil markets, and traders should be prepared for volatility.

For a look at all of today’s economic events, check out our economic calendar.