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Oil price falls after UAE backs pushing Opec to increase outputs

·4-min read
Oil prices stabilised after volatility in the market saw prices drop around 17%. Photo: Getty

Crude stabilised after volatility in the market saw prices drop around 17% after the UAE said it would encourage its OPEC+ members to pump more oil to calm high prices and relieve fuel costs.

Benchmarks have soared in recent days as the Ukraine war intensified, with Brent, the basis for international prices, hitting its highest level since 2008 on Monday.

The dramatic U-turn by the United Arab Emirates set off the biggest drop in brent (BZ=F) crude since April 2020, with the benchmark falling 13% during the session.

A barrel of brent was trading at $116.64 (£88.61), which is nearly 18% higher than when the invasion started. US light crude (CL=F) was $113.70pb in electronic trading on the New York Mercantile Exchange.

The UAE said it would call on members of the Organisation of the Petroleum Exporting Countries and its allies (OPEC+), led by Saudi Arabia and Russia, to boost oil output at a quicker rate.

"We favour production increases and will be encouraging Opec to consider higher production levels," Yousef al-Otaiba, the UAE’s ambassador to Washington told the Financial Times.

However, the country’s energy minister Suhail Al-Mazrouei attempted to temper the message on Twitter, saying the UAE is committed to the OPEC+ agreement.

Brent was up 5% to $116.64 a barrel on Thursday. Chart: Yahoo Finance
Brent was up 5% to $116.64 a barrel on Thursday. Chart: Yahoo Finance

Last week the OPEC+ said it was sticking to a 2021 agreement to continue gradual restoration of output that was halted during the pandemic.

The cartel will add 400,000 barrels of oil per-day to the market from April.

Read more: European stocks fall as oil prices cool ahead of ECB rates decision

It came as members of the International Energy Agency (IEA) will also release additional supplies from their oil reserves.

Fatih Birol, executive director of the IEA, said that the agency is "ready to bring" more oil to the markets by releasing additional stocks. Birol criticised Saudi Arabia and the United Arab Emirates for refusing to pump more crude.

Last week's announcement that the IEA would release 60 million barrels from its stockpiles has done little to stop soaring prices. Fatih said the "initial response" represented just 4% of IEA members’ reserves, insisting they could release a "substantial amount" more if required.

The agency said it will draw up a "10-point" plan to cut oil usage, especially in the transport sector.

Oil prices also retreated after Ihor Zhovkva, an aide to Ukrainian president Volodymyr Zelenskiy, said the country is open to Russia’s demand of neutrality as long as it’s given security guarantees.

Read more: How economic sanctions work

Adding to the turmoil, Ukraine’s grid operator (OGTSU) said Russian troops had entered two of four stations that pump gas to the continent, posing a potential threat to smooth gas transit to Europe.

Large amounts of gas are piped from Russia through Ukraine to the EU, meaning that disruptions pose risks of shortages and will add to inflationary pressures.

European natural gas (NG=F) prices dropped as much as 10% on Thursday after European Commission president Ursula von der Leyen said the bloc had enough gas supplies to last through winter.

Shipments via a key route crossing Ukraine are set to remain normal today as Russian energy giant Gazprom (GAZP.ME), which is sending gas intermittently via the Yamal-Europe pipeline, said flows via Ukraine are in line with client requests.

That's reassuring markets amid concerns Moscow could cut gas supplies to Europe in retaliation against sanctions. Countries are preparing plans to wean themselves off Russian energy, but a halt in supplies would send prices even higher.

Meanwhile, the latest figures show that the average price of petrol has now risen above 159p a litre, to another record high,

On Wednesday, petrol reached 159.57p a litre while diesel now averages 167.37p a litre, making for a rise of more than 5p in two days, according to the RAC. A tank of petrol is now almost £88 while diesel has now gone over £92.

“The average price of both petrol and diesel climbed to new records again on Wednesday," said RAC spokesman Simon Williams said. “Diesel unfortunately appears to be on a clear path to £1.70 a litre. As this is an average price, drivers will be seeing some unbelievably high prices on forecourts as retailers pass on their increased wholesale costs."

Williams there was a hint of better news yesterday on the wholesale market with substantial drops in both petrol and diesel which could lead, in a week or so, to a slight slowing in the daily pump price increases and records being broken less frequently.”

Watch: Why are gas prices rising?