The United Arab Emirates joined Saudi Arabia on Wednesday in promising to raise oil output to a record high in April, as the two Gulf Arab oil producers in OPEC took a united stand 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% of global supplies and will pour into a 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 OPEC states would flood the market in its battle with Russia after Moscow refused to agree last week to deep production cuts in a pact that has propped up prices since 2016.
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 in its announcement that it would raise crude supply to more than 4 million bpd in April and would accelerate plans to boost its capacity to 5 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 to their existing output that is limited by the pact with Russia that expires in March.
Adding to that, Moscow has said Russian oil companies might boost output by up to 300,000 bpd and could increase it by as much as 500,000 bpd.
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 Energy Ministry.
“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.
Saudi Arabia had said OPEC, Russia and other producers, members of an informal alliance known as OPEC+, needed to cut supplies from the market to cope with the impact of coronavirus. When Moscow refused, they said all limits would be scrapped.
Moscow had said it was too soon to cut more deeply and that producers should wait to see the full impact of the virus, which has prompted lockdowns in major economies such as China and Italy, disrupting businesses and sending shares into tailspin.
Moscow said supporting prices simply helped boost costlier production in the United States, whose output has surged above that of Saudi Arabia and Russia.
Russia indicated on Tuesday it was ready for more talks, but Saudi Arabia said there was little point if fresh discussions simply confirmed their inability to reach a deal.
Brent was trading at about $36 on Tuesday, off this week’s low of about $31 but 45% lower than at the start of year.
Much of Saudi Arabia’s international influence has derived from its role in the oil market that is akin to a central bank. It holds nearly all the world’s spare capacity and can turn the taps on and off to deal with shortfalls or surpluses.
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 virus outbreak.
Saudi Arabia last embarked on a $100 billion 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 upstream investment to boost capacity.
In 2009, when the kingdom completed its programme to add nearly 4 million bpd to capacity, Saudi officials and oil company executives have talked on and off about the possibility of targeting another boost to 15 million bpd by 2020, but those plans were shelved several years ago as demand growth cooled.