The United Arab Emirates followed Saudi Arabia on Wednesday in promising to raise oil output to a record high in April, as the two producers from the Organization of the Petroleum Exporting Countries (OPEC) raised the stakes in a standoff with Russia that has hammered global crude prices.
The extra oil the two Gulf allies plan to add is equivalent to 3.6 percent of global supplies and will pour into the market at a time when global fuel demand in 2020 is forecast to contract for the first time in almost a decade due to the coronavirus outbreak.
Oil prices have almost halved since the start of the year on fears that OPEC states would flood the market in OPEC’s battle with Russia after Moscow rejected the bloc’s call last week for deep output cuts and a pact on cutting output that has propped up prices since the 2016 oil-market collapse.
But Russia said on Wednesday that it would not reverse its decision, as it still believed cutting output would make no sense if the virus hit demand deeper than expected.
Saudi Arabia, which has already announced it would hike supplies to a record 12.3 million barrels per day (bpd) in April, said on Wednesday it would boost production capacity for the first time in more than a decade.
UAE national oil company ADNOC said it would raise crude supply to more than four million bpd in April and would accelerate plans to boost its capacity to five million bpd, a target it previously planned to achieve by 2030.
By raising supplies, Riyadh and Abu Dhabi will add a combined 3.6 million bpd of extra oil in April to a market already awash with crude, compared with their existing output, which has been limited by the pact with Russia that expires in March.
In addition, Moscow has said Russian oil firms might boost output by up to 300,000 bpd and possibly as much as 500,000 bpd.
Russian Minister of Energy Alexander Novak said on Wednesday that Saudi Arabia’s plan to raise output was “not the best option” and said Moscow was still open to dialogue with OPEC. But his deputy told Reuters that cutting output was not an option, either.
“We cannot fight a falling demand situation when there is no clarity about where the bottom [of demand] is,” deputy Pavel Sorokin told Reuters.
OPEC member Algeria said intense discussions were under way and UAE Energy Minister Suhail al-Mazrouei called for a new pact on supplies. But Saudi Arabia said on Tuesday that talks were pointless unless they were going to lead to a deal.
State-run Saudi Aramco plans to raise capacity to 13 million bpd from 12 million bpd, Chief Executive Amin Nasser said, adding that the move was ordered by the Ministry of Energy.
“The company is exerting its maximum efforts to implement this directive as soon as possible,” Nasser said.
No timeframe was given for the plans, which will require billions of dollars of investment.
The virus has prompted lockdowns in major economies such as those of China and Italy, disrupting businesses and sending shares into a tailspin.
Moscow also said supporting prices simply helped boost costlier production in the US, where output has surged above that of Saudi Arabia and Russia. US producers, by law, are barred from participating in any supply pacts.
The US government slashed its forecast for US oil output in 2020, saying it would rise by 760,000 bpd not the 960,000 bpd it previously forecast, and would drop by 330,000 bpd in 2021 to 12.66 million bpd.
Even as Abu Dhabi and Riyadh promised more supplies, OPEC slashed its forecast for global oil demand growth this year and said further reductions might follow.
Brent was trading four percent down below $36 on Wednesday, off this week’s low of about $31 but 45 percent lower than at the start of year.
Saudi Arabia’s influence on oil markets is much akin to a central bank’s role in financial markets. The kingdom holds nearly all the world’s spare capacity and can turn the taps on and off to deal with supply shortfalls or surpluses.
But the kingdom has increasingly voiced frustration about acting as the world’s main “swing producer”, propping up prices by much bigger cuts than others, while its reserves are among the world’s biggest and its oil among the cheapest to extract.
The clash between Saudi Arabia and Russia has triggered panic selling of shares on Wall Street and other stock markets that were already pummelled by the coronavirus outbreak.
US oil firms have rushed to cut dividends and spending.
Oil companies in Canada’s energy-rich Alberta are expected to announce layoffs and export cuts soon after oil prices plummeted, the Canadian province’s premier said on Wednesday.
Saudi Arabia last embarked on a $100bn push to raise its capacity more than a decade ago amid a price boom fuelled by China’s growth. Since then, Saudi officials have brushed aside questions of new investment to boost capacity.