OPEC+ backs bigger output increase, clearing Saudi Arabia to ramp up oil production to offset Russian shortfalls

• If sanctions force Russia to cut oil production, Saudi Arabia could boost its own output, sources told the Financial Times.
• But oil prices reversed higher after OPEC+ agreed to increase production quotas more than expected.

OPEC+ and its allies agreed Thursday to increase oil production more than expected, opening the door for Saudi Arabia to ramp up its own output if wartime sanctions force Russia to pump less.

The oil group will boost output by 648,000 barrels a day in July and August, up from its prior monthly increases of about 400,000 bpd. But crude prices reversed earlier losses to turn higher.

The OPEC+ decision comes after sources told the Financial Times that Saudi Arabia is prepared to pump more. Concern over a more dire supply squeeze for crude oil has emerged since the European Union announced its partial Russian oil embargo on Tuesday, as well as a ban on insurance for Russian cargoes that could limit Moscow's exports to markets outside the EU.

Saudi Arabia is aware of the present risks in oil markets, "and that it is not in their interests to lose control of oil prices," a person familiar with the matter told the FT. Thursday's OPEC+ oil production increase also presents the opportunity for a potential deal with the US.

The Saudis previously resisted calls to boost production as it did not yet see a genuine shortage in the market and wanted to maintain spare capacity to respond to a real crisis, according to the FT.

However, the landscape could shift quickly and dramatically, given that China is starting to emerge from COVID-19 lockdowns and Russian output is struggling to rebound.

OPEC and non-members like Russia previously agreed to gradually lift production, but some countries in the oil group have discussed excluding Moscow from its quota after it missed its target.

Meanwhile, amid soaring gas prices in the US, President Joe Biden could be gearing up to visit Saudi Arabia soon, Bloomberg reported Wednesday.

So far, Crown Prince Mohammed Bin Salam — the effective ruler of Saudi Arabia — has spurned Biden's calls, as the White House has said early on it would deal directly with Saudi Arabia's official head of state, King Salam bin Abdulaziz.

But with gas prices hitting record after record over recent weeks, pressure is mounting for Biden to meet with Bin Salam, Bloomberg reports. The US is staring down dwindling energy stockpiles, which have pushed up prices for diesel, natural gas, and jet fuel.