US, Saudi Arabia strike truce as oil prices rise

The US and Saudi Arabia have reached a detente after weeks of hostility over high oil prices, with the OPEC cartel announcing a production hike even as the new Covid variant threatens demand.

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Saudi Arabia and Russia surprised markets by agreeing to add 400,000 barrels of oil a day from January, even though the virus undermines prices for oil-producing nations. Ministers could gather again at any moment to review the decision if conditions change, but it left the door open to changing its mind.

After weeks of diplomatic tension between Saudi Arabia and the U.S., President Joe Biden called for more oil to be released from pump prices and OPEC pushing back a truce. A person familiar with the meetings said that the result of their talks has been a game-changer that goes beyond oil policy. Both sides said what concessions each had extracted.

The U.S. delegation included Amos Hochstein, the top U.S. energy diplomat, and Daleep Singh, the deputy national security adviser for international economics. Hochstein said earlier this week that the two countries had discussed how to partner to invest in the energy transition and collaborate to build a 21st century clean energy architecture. Since taking office, Biden has refused to deal directly with Crown Prince Mohammed bin Salman, and has only spoken to his father, King Salman. There are two countries with overlapping interests, including Iran, and talks over containing its nuclear ambitions.

Relations had reached a low point as Biden released millions of barrels from the U.S. Strategic Petroleum Reserve last month to push down oil prices after his calls for OPEC to act had gone unheard. With inflation concerns stalking central banks around the world, Biden wanted to increase the impact of the move by getting other countries on board, including Japan, India and the U.K.

OPEC delegates warned that they could respond in kind to bolster prices.

The cartel appeared to have another good reason to cut output when the new variant of Covid emerged last week and knocked 20% off the price of oil. After the talks in the Gulf, a compromise was struck - and it suited Moscow too, which was keen to keep pumping. The cartel agreed to stick to its original plan of gradually increasing supply, but with a get-out clause in case markets take a turn for the worse.

The U.S. welcomed OPEC's decision and had a special mention for Saudi Arabia.

"We appreciate the close coordination with our partners Saudi Arabia, the UAE, and other OPEC producers over the past few weeks to help address price pressures," Jen Psaki, White House spokeswoman, said after the meeting. We believe this should help facilitate the global economic recovery, along with our recent coordinated release from the SPR. The ministers were tight-lipped and delegates stressed the uncertainty posed by omicron on oil demand. They put off a decision to the last minute, postponing technical meetings to allow more information to come to light before they had to crunch the numbers.

The global oil benchmark, Brent crude, fell as much as 4.6% on the OPEC agreement, but recovered those losses as traders realized the importance of the get-out clause in the deal. Brent was up 2.3% to $70.48 a barrel at the end of the day.

In its communique, OPEC said that its meeting remained effectively in session, so it can change policy without a warning ahead of its next meeting, scheduled for Jan. 4. It was such an unusual move that OPEC officials said they couldn't recall a precedent.

Bob McNally, a former White House official, said the OPEC communique announcing that the meeting remains ongoing is very important. If conditions warrant, it signals that they are poised to pause or cut. The Investor Reshaping Exxon From the Inside: None Charlie Penner, the Investor Reshaping Exxon From the Inside