Dmitry Zhdannikov, MahaEl Dahan and Alex Lawler

DUBAI (Reuters – Saudi Arabia’s decision that OPEC+ stop using data from West energy watchdog OPEC+ reflected concerns about U.S. influence over the figures, sources close the matter stated. This added to tension between Washington and Riyadh.

Organization of the Petroleum Exporting Countries (OPEC+) has ignored Western requests to boost production to reduce oil prices of about $100 a barrel.

This is a delicate issue because high energy prices, partly due to Russia’s war against Ukraine, have fueled inflation. As a result, President Joe Biden will be under pressure to bring down record-setting gasoline prices in the United States ahead of November’s midterm elections.

Washington failed to resolve Gulf concerns over Iran during nuclear talks in Vienna. Washington also hasn’t ended support for the offensive operations of a Saudi-led alliance in Yemen. The United States now has conditions regarding weapons sales to Gulf countries.

Biden did not speak directly to the Saudi Crown Prince Mohammed bin Salman. He is de facto the ruler of the Kingdom.

The White House spokesperson declined to comment.

Against all this background, an OPEC+ technical meeting that lasted more than six hours ended in March with a unanimous vote to remove the International Energy Agency (IEA’s) numbers from assessing the status of the oil market.

Sources said that the meeting was chaired jointly by Russia and Saudi Arabia. Also present were Algeria, Kazakhstan, Kuwait and Nigeria.    

The symbolic nature of this decision is mainly symbolic, as OPEC+ has the option of choosing which six non-OPEC source numbers to use when calculating the market balance.

Six sources claimed that the IEA had dropped the data due to frustration over the bias of the IEA towards the United States.

Sources cited in particular the IEA’s large upward revision of historical demand in February and the agency’s estimate on how much Russian crude west sanctions would be removed from the market. They considered this exaggerated.

    “The IEA has an independence problem, which is translating into a technical assessment problem,” one of the sources directly involved in the decision told Reuters.

Because of the sensitive nature of the matter, the sources were asked to keep their identities confidential.

Saudi Arabia and the United Arab Emirates energy ministers did not respond to our request for comment.

Sources went so far as to call the current situation a “cold War” and to blame the IEA.

Reuters received a statement from the IEA stating that their data analysis was neutral.

It stated that the IEA aims to present an impartial and independent view on oil market fundamentals. Political considerations are not a factor when assessing the market outlook.

According to the report, “The oil market data includes demand, supply and inventory data from government sources. It also contains estimates for areas where there is no data.”

CRISIS – BORN

The IEA was founded in 1974 as a way to aid industrialised countries deal with the 1973 oil crisis that followed the Arab embargo which slashed supplies and drove prices up.

The group, made up 31 industrialised states, provides advice to Western governments about energy policy. They also have the United States as their top financial backer.

Since its inception, it has witnessed the energy market change and has had to deal with OPEC.

Before the heightened tensions this year, a tipping point for Saudi Arabia (and its close ally United Arab Emirates) was the IEA’s report before United Nations climate negotiations in Glasgow last year.

It was concluded by the report that no new hydrocarbon project should be built if there is a serious goal to reach net zero emissions in 2050.

The IEA ignored the amount of continuing demand over the medium term. This has aggravated OPEC+’s concern. Sources say that OPEC+ bribed at the IEA request to increase oil prices to please the West, when the market was adequate supplied.

OPEC has been openly critical, in addition to comments made by sources.

Suhail Al-Mazrouei (United Arab Emirates energy minister) asked that the IEA be more realistic and stop issuing misleading information.

SHIFTING BASELINE

    The IEA in February took the oil market by surprise when it revised its baseline estimate of global demand by nearly 800,000 barrels a day, just under 1% of the roughly 100 million bpd global oil market.

Analysts said that this revision was the result of an upward reassessment in 2007 of petrochemicals consumption in China and Saudi Arabia. It leads to the conclusion that the oil market has become more tight than originally thought. This makes it clearer that OPEC needs to boost its output faster.

Sources claimed that Saudi Arabia did not agree with the new assessment.

According to the IEA disruptions due to pandemic made it harder for them get precise figures. They published their revision as soon the new information became available.

It stated that the IEA “had noted since a while an increasing mismatch between observed and implied inventories changes, and the revisions to our historical oil need estimates incorporated into the February report went someway to closing this gap.”

    The IEA’s predictions of the impact of sanctions on Russian production have also drawn criticism from within OPEC as being designed to press the case for an OPEC output increase, the sources said.

The IEA stated that Russian oil output may drop by three million bpd in April. Meanwhile, traders such as Vitol, Trafigura and Trafigura said Russian oil exports might fall by between two to three million bpd. According to Russian data and analyst estimates, the Russian oil production was less than 1,000,000 bpd at early April.

The IEA stated that “we based our initial assessment on exports upon statements by a few companies already announcing their reduction or cut of Russian oil purchases, but we noted an increase in interest in discounted barrels which could offer an offset.”

“As you indicated, due to the rapid changing circumstances, the estimate will continue being reviewed and revised as needed.”

OPEC+ so far has resisted US and IEA’s calls to increase oil production to lower crude prices. Crude prices rose to new highs in the 14 years following Western sanctions against Moscow. This was after Russia invaded Ukraine on February 24, which Russia described as a “special military operations”.

    Saudi Arabia and the United Arab Emirates, which hold the bulk of spare capacity within OPEC, have both said OPEC+ should stay out of politics and at a monthly meeting at the end of March the group struck to a previously planned modest monthly increase.     

Biden and all his aides believe that more oil is required to reduce prices. U.S. announced that it would release record numbers of 180 million barrels oil from its Strategic Petroleum Reserve.

The IEA announced last week that 120 million barrels would be released over the next six months.