Oil prices driving Russian equities

Oil continues to hover near multi year highs with the recent surprise inventory draw numbers only adding to the bullish posture of the market. Although, the Biden administration has made several attempts to jawbone the price of oil lower, first by appealing to OPEC to increase production and then hinting that it may release some stockpiles from the SPR reserve

Most of the analysts believe that crude and the whole hydrocarbon complex will at very minimum remain steadily bid for the foreseeable future.

• Global demand for oil favors oil rich RSX ETF
• Russian equities are in a tug of war between inflation and commodity spike
• Yield harvesting RSX offers a low risk way to play the trend

Global demand for oil is almost at pre-pandemic levels of 100 million barrel per day and the re-opening of major business travel routes should boost demand further. In Europe, with natural gas prices already at very high levels, any deep freeze conditions this winter could exacerbate the already elevated price levels.

All of this bodes well for Russia which stands as one of the pre-eminent hydrocarbon exporters in the world and whose oil and gas complex has already locked in massive gains on the production due to the 80% rally in crude.

The easiest and most natural way to play this theme is through the RSX ETF which provides a broad exposure to the Russian oil and gas industry and trades more than 3 million shares each day. The stock has responded well to the rising price of oil gaining 15% since the summer. Although, this is a respectable move it is rather muted in nature given the outsized gains in the underlying commodities. 

The reason for the modest gains in Russian equities has more to do with underlying turbulence in the Russian economy which has tempered the buoyant recovery in hydrocarbon demand. Russia continues to suffer from the scourge of COVID registering an average of 1000 deaths per day this month. More importantly the country is facing serious inflation pressures as it continues to import a vast array of goods that are now subject to supply chain constraints from many Asian producers.

The Russian central bank has already raised the benchmark rate to 7.5%, one of the highest amongst the EM - and has threatened to hike another 100bps in December if inflationary pressures do not abate. All of that has created tight credit conditions for the Russian economy and has compressed P/E spreads for equities.

The push and pull between higher commodity prices and elevated inflation has clearly curbed some of the upward momentum in the RSX nevertheless the ETF may be an excellent instrument for a low risk yield stripping play.

At current levels the RSX provides a very respectable 2.75% yield and given the fact that most of the Russian oil majors are seeing 14-18% Free Cash Flow yields at current commodity spot prices chances are good that many of the Russian companies in the ETF will raise their dividend payouts over the course of the next year. Meanwhile the RSX offers listed options on the instrument and investors could sell near or at the money calls on a bi monthly basis to enhance their return. 

As long as the price of oil remains within the $70-$90 range for 2022 the value of RSX is likely to remain stationary at worst and appreciate at best. Investors therefore could harvest dividend yield and option premium in a relatively low risk trade with possibility of double digit annual returns.

 

Overcrowding of warships in South China Sea

Senior Chinese diplomats have called on the United States not to show off its power over the South China Sea and warned of the risk of a misfire in the disputed waters with increasing presence of naval vessels.

Speaking to a South China Sea forum in Sanya, on the Southern Chinese island province of Hainan, via video link, Chinese Foreign Minister Wang Yi blamed an unspecified country for seeking to show off its power and maritime dominance.

“We must adhere to multilateralism and jointly maintain maritime order. The ocean is not a zero-sum game of competition, and no one should use the ocean as a tool to impose unilateral power,” Wang said.

“We oppose that certain countries, for the purpose of safeguarding maritime hegemony, flaunt their forces and form cliques at sea, and continue to infringe on the legitimate and lawful rights and interests of other countries.”

China and the US have been stepping up their military presence in the disputed waters, with increasing risks of an accidental clash. Concerns have escalated as the US has teamed up with its allies, including Britain and France, to send naval vessels to the South China Sea. Diplomatic observers have warned the consequences would be more serious if there was a clash between nuclear submarines.

Last month, the USS Carl Vinson carrier strike group and the British carrier HMS Queen Elizabeth conducted a series of exercises in the South China Sea. It was the USS Carl Vinson’s ninth visit to the area this year.

The South China Sea is heavily contested between China, the Philippines, Vietnam, Malaysia, Brunei and Taiwan. The US is not a claimant, but accuses Beijing of stoking military tensions and restricting freedom of navigation there, and has said its presence is needed to provide security backup to its Asian allies.

“China calls on the United States to actively consider joining the convention and take concrete actions to participate in the defence of the international maritime rule of law,” he said.

Gloria Macapagal Arroyo, former president of the Philippines, said the tensions and troubles in the South China Sea were posing “grave threats” to stability, and Southeast Asian nations were seriously concerned.

“Imagine what an exchange of fire between warships of the People’s Liberation Army and the US Seventh Fleet would do to stock, currency and commodity markets worldwide,” she asked the forum.

“The world hopes that such an unwelcome event remains pure imagination. But there are reasons to worry. For the first time in years, if not ever, aircraft carrier groups of China and America deployed in the South China Sea at the same time; so did French and British warships. Earlier this year, the presence of hundreds of Chinese vessels near Whitsun Reef led to Philippine diplomatic protests and the exchange of unfriendly words between Manila and Beijing.”

Arroyo said the South China Sea disputes had previously been managed by the expansion of economic and diplomatic ties among the nations involved, and with a balance of power.

“Now, the balance of power approach is increasingly being taken with the growing presence of American and allied forces in the South China Sea, which will get even more formidable with the Aukus, to which the PLA may feel the need to respond,” she said, referring to the deal struck with the US and Britain to help Australia acquire a nuclear submarine fleet.

A Pentagon report last week said China’s navy had expanded to 355 ships and submarines by 2020. It said the Chinese navy had placed a high priority on modernizing its submarine forces, operating six nuclear-powered ballistic missile submarines (SSBNs), six nuclear-powered attack submarines (SSNs), and 46 diesel-powered attack submarines (SSs).

But Wu Jianghao, assistant Chinese foreign minister, said China had engaged in discussions with other South China Sea claimants on joint exploration of its resources and a code of conduct.

“We must oppose maritime hegemony, division and confrontation, and build the ocean into a territory where all parties expand cooperation, rather than a zero-sum arena,” he told the forum.

 

United States succumb to Israel pressure

Biden administration abstained, but did not reject a General Assembly resolution affirming the right of return for Palestinian refugees to sovereign Israel. In doing so, it broke with the voting pattern on Israel set by former US President Donald Trump in which all such texts received an automatic "no" vote.

Obama administration, however, had traditionally abstained from this particular text, which comes annually before the UN General Assembly (UNGA).

"This year, the United States returns to a position of abstention on the text 'Assistance to Palestine Refugees,'” American Deputy Ambassador Richard Mills told the UNGA's Fourth Committee late Tuesday afternoon.

He spoke as the committee gave initial approval to six anti-Israel and pro-Palestinian draft resolutions that will come up later this year at the UNGA plenum for a final vote.

Three of those texts affirmed the work of the UN Relief and Works Agency (UNRWA), which services 5.7 million Palestinian refugees in Syria, Lebanon, Jordan, Gaza, the West Bank and east Jerusalem.

All three of those resolutions call for the right of return for Palestinian refugees to sovereign Israel or for their receipt of compensation for the property they lost when they fled their homes.

Out of the three, the resolution titled "assistance to Palestinian refugees" is considered to be the most benign. 

Canada similarly abstained on the text called assistance to the Palestinian people, while Australia supported it. The US and Canada joined Israel in rejecting the other two resolutions on UNRWA. Australia abstained on one of those and rejected the other.

The European Union supported all three UNRWA texts. Only Israel totally opposed the text "assistance to Palestinian refugees" which passed 160-1, with nine abstentions.

The other countries that abstained on the "assistance to Palestinian refugees" resolution were Cameron, Marshall Islands, Micronesia, Nauru, Palau, Papa New Guinea and Uruguay.

The Trump administration had opposed UNRWA and cut US funding to the organization. Both the Trump administration and Israel have charged that textbooks used in the agency's schools are antisemitic and incite against Israel. 

They opposed the UNRWA policy of applying refugee status to the descendants of Palestinians who fled their homes in 1948; a move which they explain creates an ever-increasing population of refugees.

Prior to Tuesday's vote, an Israeli representative spoke out against UNRWA at the UNGA Fourth Committee meeting.

"We cannot stand idly by when a UN humanitarian agency promotes a political agenda under the guise of true assistance," the Israel representative said.

"UNRWA must be accountable for the hateful indoctrination of children in its classrooms. It must put an end to the spreading of antisemitic lies by its employees and it must show a genuine commitment to transparency and accountability," the Israeli representative said.

She added that UNRWAA resources and infrastructure must not be hijacked by Hamas in conducting acts of terror," she added.  

Israel has also opposed the right of return for Palestinians to sovereign Israel, a move which it argues would destroy the country's identity as the ethnic-national homeland for the Jewish people. It has explained that in the essence of a two-state resolution to the conflict, Palestinians would have a right of return solely to a Palestinian State, much like Jews would have a right of return solely to Israel.

The Biden administration, however, has restored US funding and support for UNRWA.

"As many members know, under President Biden, the United States announced it would restore its financial support to UNRWA, which we do believe is a vital lifeline to millions of Palestinians across the region," Mills told the UNGA. 

"Since April, the US government has provided more than US$318 million to UNRWA in Fiscal Year 2021, including critical support for education, health and social services benefiting millions of Palestinian refugees registered with UNRWA," he said.

The US, he said, has noted that some changes were made to the text of the resolutions on the agency "that reflect our priorities in line with strengthening UNRWA," adding that "the United States will continue to work with UNRWA; work to strengthen the Agency’s accountability, its transparency, and its consistency with UN principles."

Mills called on UN member states to support the agency financially, noting that many of those who voted in favor of the three UNRWA resolutions were not willing to spend money on the organization.

"I would also like to take a moment to point out the overwhelming support from member states for these resolutions voted here today, compared with the relatively few member states that financially support UNRWA," he said. 

"In light of the Agency’s urgent shortfall, the United States urges member states to support UNRWA’s services for Palestinian refugees not only in word but in action – and to do so on an expedited basis," Mills said.

The resolutions were voted on in advance of a donor pledging conference for UNRWA scheduled to take place in Belgium on November 16.

Shrinking global spare oil production capacity

Spare crude oil production capacity has shrunk significantly due to under-investment, the head of Saudi Aramco said, warning that the potential rebound in jet travel and continued power plant demand for liquid fuels could create a worryingly tight market in 2022. 

"Unfortunately, there is not enough investment in the sector to increase supplies and maintain that spare capacity," Aramco President and CEO Amin Nasser said at the Nikkei Global Management Forum.

He estimated that global oil demand would surpass pre-pandemic levels of some 100 million bpd next year. Jet fuel demand remains about 3 million-4 million bpd below where it was before the pandemic, and a recovery in air travel would quickly consume the world's spare production capacity, he said.

The current high oil prices reflect the healthy economic recovery, as well as energy switching in the power sector from gas to liquid fuels, which could potentially add 1.5 million bpd of oil demand this winter, Nasser said.

Spare capacity can act as the market's buffer against unexpected disruptions to supply, such as hurricanes, political unrest and security incidents.

With many international oil companies seeking to downsize their oil portfolios and some producing countries struggling to revive upstream investment, Saudi Aramco stands to benefit and gain in market share, as it embarks on raising its crude production capacity from 12 million bpd to a world-leading 13 million bpd by 2027. The company is already the world's largest exporter of crude.

The slower pace of the energy transition in many developing countries means oil will remain a major fuel source for several decades, Nasser said.

"Between now until 2050, there are going to be an estimated 2 billion more energy users in the world and population growth would be led by developing countries, where energy transition will be much slower," Nasser said. "Hence, I expect oil and gas demand will be healthy for many decades to come."

Nasser highlighted that there are different needs for less developed countries as consumers in developed countries may be able to afford expensive energy solutions, but the same would not apply for consumers in developing countries.

"The world needs green and clean energy policy that is more inclusive," he said.

Oil and gas would remain Saudi Aramco's key businesses for a long time, though efforts to reduce carbon footprint will be executed with its combination of strategies including carbon capture, gas to hydrogen, liquid to chemical and more, Nasser said. Saudi Aramco recently set a target of bringing its carbon emissions down to net zero from its operations by 2050.

"Aramco's upstream emissions are perhaps one of the lowest in the industry. ... We have done a lot and put in a lot of investments in reduction of GHG emissions and we are confident with our strategy," he said.

Can Israel and Iran be friends ever?

Till yesterday, Israel was brainwashing Arabs by propagating “Iran is a bigger threat as compared to Israel”. Today I was amused to read an article in The Jerusalem Post saying, “The strong and rich relationship between Iran and Israel goes back to ancient times, to the era of King Cyrus.” 

The article ends with the words, “Both nations, the Iranians in particular, have never been so aware as they are today of the positive and beneficial consequences of their close relationship and historic friendship, but there are still many who must be made aware of it.”

Iran and Israel can boast a unique and exceptional socio-historic and cultural relationship going back over 2,500 years and many Iranians and Israelis believe that this very rich common background is capable of changing the face of the Middle East in the first decades of the 21st century, and also of changing the political atmosphere in the future to the benefit of both nations.

The burning desire for peace among many in the Middle East is threatened by groups of terrorists doing their utmost to undermine peace. Iran as a key country can play an important role, but under which leadership? Sooner or later the Shi’ite clergy and their evil ideas will be swept away by a younger generation of Iranians. The foundations for the strong intercultural bridge between Iran and Israel must be laid as soon as possible because change in Iran is very close.

The strong and rich relationship between Iran and Israel goes back to ancient times, to the era of King Cyrus, who allowed the Jews to return home to build the Temple. There are several warm references in the Bible with respect to Cyrus and the Iranians (in Isaiah, Daniel and Chronicles). Many distinguished Iranian scholars assert that only the Iranian-Jewish communities cared for and cherished the pre-Islamic Iranian culture and language.

After the Arab-Islamic invasion (638 AD) the situation changed, but there were several outstanding examples like the Jewish army commanders Rashid-al-Din Fazl-Allah and Saad al Dowleh and Shams al Dowleh (1231-1336) and many others. Prior to the Pahlavi dynasty (1925-1979) the relationship between the Iranian and the Jewish communities was not so good, but a real transformation took place during this period.

Official and formal diplomatic ties between the two countries began in 1950 and ushered in a fruitful period of cooperation and development. In January 1979 the new rulers kicked out the Angel of Freedom, whereas 40 million young Iranians wanted to bring her back to the country.

The more the regime intensifies its anti-Western and anti-Israel propaganda so the Iranian people are becoming more pro-Western and pro-Israel. They are deeply convinced that whatever they hear from the regime’s representatives they just interpret as the opposite.

Consequently, pro-Western ideas and respect and admiration for Israel are growing daily in the hearts of the people. Their daily actions, communications with external mass media, written material by journalists or student slogans, speak for themselves.

Many Iranians are opening their eyes and minds and criticizing the regime. They are proud to be the friend of the only democracy in the Middle East and they want to clearly and openly declare their deep relationship with the twin sister in the area, a relationship based on the history of the two nations.

What Iran can offer Israel?

Iran, as one of the largest countries in the Middle East, with a population of 75 million, has the potential to be one of the best friends of Israel in the world. Such a bilateral friendship could greatly benefit both sides, and together with the warm relations with Turkey and Central Asian countries, it would certainly transform the current ugly political situation in the region.

In the future, Iran can be responsive to many of Israel’s desires and needs, such as oil and many other mineral resources. Iran’s prominent position in OPEC and other international bodies will of course make it a serious supporter of Israeli foreign policy.

The future Iranian generation’s appetite for peace is stronger than for war. In a calm atmosphere without any regional tension, Iran will certainly open its gates to Israeli expertise in the oil field and other technical areas to benefit from its know-how and cooperation.

What Israel can offer Iran?

Global cooperation and a harmonious relationship between Iran and Israel will transform the market on both sides. The beneficiaries of such a transformation will not only be big businesses and corporations, but also ordinary people in both countries. Statistics and research will show how commercial development (technology imported from Israel to Iran) will rapidly change the face of Iranian society.

The markets in Iran are especially thirsting for new high technology. Jewish businessmen and companies in the West will also be encouraged to do their share in meeting Iran’s technological needs.

Teams of Israeli experts will come to Iran to help the local people manufacture, renovate and rebuild all of Iran’s rotting and ruined machinery. There is a tremendous variety of needs to be addressed, from education, banking, military and security to commercial, industry, agriculture and farming, from food to medicine, research, university and sport.

Iranians still enthusiastically recall the city of Ghazvin in the north of Iran completely demolished by an earthquake in 1963 and rebuilt by Israeli experts, and such experience will help people on both sides. The powerful standing of Israel in the international mass media will help the Iranian people to cleanse the harshly negative reputation gained during the Islamic Revolution years.

The relationship with Israel will also provide new avenues for marketing Iranian oil, and Israeli technicians will be most welcome to help solve the great problems in Iran such as gas and water pipelines, telephone communication, electricity, dams, roads, transport and numerous other neglected or undeveloped projects.

Bilateral cooperation between Iran and Israel

It is the author’s sincere view, based on his personal, social and academic experience, that those who wish for a secure future for both nations in a prosperous and peaceful Middle East have no option but to welcome and foster close ties between the two nations. Such a desire is not an empty hope but could be a practical path leading to a brighter world.

Iranians will welcome and be proud of a strong relationship with Israel, the only democracy in the Middle East and one of the world leaders in hi-tech, medical advancement and agricultural production. Conversely, to have a strong friend and ally in the region with the richest oil and mineral resources and an open-handed government and open-minded population will represent a great opportunity for Israel.

Such an ambition is easily expandable to the Central Asian countries, as well as Turkey and India. Why India?

Parsees in India are the Iranians who left Iran 14 centuries ago after the Arab-Muslim invasion of Iran. They are now among the most aristocratic and upper class of Indian society and administration. A large group of Iranian intellectuals (both inside and outside the country) are working to enable the Parsees in exile to return to their old home just as the Jewish communities after 2,000 years came back home from the Diaspora.

For the past two centuries, Westerners have been the avant-garde of liberty and social freedom, but at the same time, they are also the slaves of their benefits. Iran has no option but to have a global relationship with the West.

A strong relationship with Israel will benefit Iran in two ways: on the one hand, Israel is a clear symbol of the West with high ability, and on the other hand, is full of warm Eastern mentality. In addition, Israel has a deep historical and cultural affiliation with Iran.

To cement this future wide-ranging relationship we propose:

1. A new bilateral legal system in both countries, based on solidarity, ancient historical friendship and a productive global relationship (political, economic, social, cultural, military, security), and answering the requirements of the 21st century.

2. Developing university-standard visits and research, educational exchanges, bilateral scholarships at different levels, according to the priorities and requirements of both countries.

3. Increased collaboration in journalism and the mass media, including regularly organized meetings.

4. Bilateral development of artistic, sport, tourism and other social events. The holding of seminars, conferences and exhibitions in the spheres of culture, industry and agriculture and inventions can yield better knowledge about each other.

5. Development of marketing on both sides for commerce and trade in the private and public sectors. Minimizing the bureaucratic complications and maximizing the facilities in customs, taxes, insurance and transport.

6. Consolidating cooperation between Iran and Israel in the areas of police, army and security, including mutual research and exchanges in this area.

Who attacked Iraqi Prime Minister?

Reports of a recent drone attack on the home of Iraqi Prime Minister Mustafa Al-Kadhimi have caused a major escalation in the region. There is an increased use of drones as a strategic weapon, with the goal of intimidating the Iraqi Prime Minister just days after security forces clashed with pro-Iranian protesters.

It is apprehended that the attack was carried out by pro-Iranian militias as probably there exist no other culprits in Iraq who have drones that could or would attack the Iraqi Prime Minister.

While ISIS has used drones in the past, it’s not clear why they would suddenly emerge now to target the Iraqi leader and that leaves Iran-backed groups firmly in the frame.

While official reports have not yet specified which group was behind the attack and no one has yet taken responsibility for it, the trend of such attacks in the region points to Iranian-linked groups.

A drone was used to attack a US garrison at Tanf in Syria in October. In July, a drone was used to attack a commercial tanker in the Gulf of Oman, killing two crew members. In both instances, the US and other countries have pointed the finger at Iran.

In May, a drone was launched from Iraq, or possibly from Syria, targeting Israel during the 11-day war with Hamas. It is believed that Iran was also behind this attack.

For years, Iran has been building more sophisticated drones for surveillance and kamikaze-style attacks. The drones have become better at navigation and pre-programmed flight paths, or even real-time intelligence gathering. The fact they have targeted a moving ship is a clear indication of this.

An attack on the residence of Kadhimi is also a likely message by pro-Iran groups in Iraq that the Prime Minister is not immune.  

Iraqi armed forces announced the start of investigations to discover the location of the launch of the booby-trapped drone that targeted Kadhimi. Images showed the damage to the home, but it is unclear if drone fragments had been found that would link the design to any single country or entity.  

One of the reasons pro-Iran groups — including Hezbollah, Hamas and the Houthis in Yemen — use drones, is that it is difficult to trace their launch site and to know who is behind them once they are launched.

Israel has, in the past, accused Iran of creating a drone training center. Drones from Iran and technology from Iran has been a key to aiding Houthi efforts to attack Saudi Arabia.

Since January, the pro-Iran militias in Iraq have increasingly used drones to target US forces. This has occurred even in Erbil where the pro-Iran militias used a drone in the spring of 2021 to target what US media called, at the time, a CIA hangar at Erbil airport. Pro-Iran groups have done parades with drones.  

But, the kind of drone used to attack the Iraqi Prime Minister may be smaller than some of the kamikaze drones, which tend to be larger than a human. Locating parts of the equipment will be important, but Iraq’s security services may be reticent to conclude that Iran or any of its proxy groups were behind the attack.

Because in previous incidents where Iraq’s prime minister has acted against pro-Iranian groups engaged in illegal attacks, they succeeded in freeing their jailed members as a result.

Now, the groups, most linked to the Fatah party in parliament and the paramilitary Hashd al-Shaabi, have been conducting a sit-in to demand the overturn of recent election results. This kind of election protest is designed to raise tensions and pressure the prime minister.  

The problem being faced by the Iraqi government is that the militias are often tied to official paramilitary forces because former Iraqi Prime Minister, Haider Abadi, pushed to give the militias a legitimate role.

The militias were given increased power in 2014, based on some existing pro-Iran units, to fight ISIS but after the war on ISIS ended, the militias refused to go home and Abadi, who was backed by the US, empowered the militias.

US accuses OPEC Plus jeopardizing global economic recovery

The White House has said OPEC Plus is risking imperiling the global economic recovery by refusing to speed up oil production increases and warned the United States was prepared to use "all tools" necessary to lower fuel prices.

The move came after Saudi Arabia-led Opec and its allies such as Russia rejected US calls to help tame rising oil prices, insisting they would stick with a plan of only gradually increasing output, even as demand roars back from the depths of the pandemic.

"Opec+ seems unwilling to use the capacity and power it has now at this critical moment of global recovery for countries around the world," said a spokesperson for Biden's National Security Council.

"Our view is that the global recovery should not be imperilled by a mismatch between supply and demand."

Oil prices are close to seven-year highs despite economic activity not yet fully recovering to pre-pandemic levels and higher energy costs stoking concerns about inflation. Brent crude oil prices slipped about 2 per cent after the meeting towards $80 a barrel.

US President Joe Biden has blamed Russian and Saudi oil supply restraint for a surge in US petrol prices, which have risen 60 per cent in the past 12 months.

Jennifer Granholm, the US energy secretary, told the Financial Times last month that a release of oil from the country's strategic stockpiles was among "tools" the Biden administration could deploy to cool crude prices that have more than doubled in the past year.

Saudi Arabia defended its stance on Thursday saying the producer group was acting as a "responsible regulator" by only gradually increasing oil output by 400,000 barrels a day (bpd) each month.

"What we have seen over the past few months again and again and again is that energy markets must be regulated otherwise things will go astray," Prince Abdulaziz bin Salman, Saudi energy minister, said in an extended press conference.

The group sought to present a united front to the US, with energy ministers from Mexico to the UAE lining up to support the decision.

Opec+ said in a statement it wanted to "provide clarity to the market at times when other parts of the energy complex outside the boundaries of oil markets are experiencing extreme volatility and instability".

Abdulaziz repeatedly referenced gas and coal markets, the prices of which have risen faster than oil this year, to justify the group's actions but the explanation failed to satisfy the White House.

Saudi Arabia has long been one of Washington's most important Middle Eastern allies but tensions are increasing with the Biden Administration.

Biden has refused to speak with Crown Prince Mohammed bin Salman, the heir to King Salman and day-to-day ruler of the country. The US released a declassified intelligence report in March that said the Crown Prince authorised the murder of Washington Post journalist Jamal Khashoggi.

Abdulaziz is the half brother of the Crown Prince and is seen as frustrated by the push by western countries to cut their reliance on fossil fuels while also asking the kingdom to raise oil production.

"The relationship between Saudi Arabia and the US is at risk of being strained as the latter is going full-bore to tackle climate change," said Christyan Malek, head of oil and gas research at JPMorgan.

"But Saudi Arabia in this context needs to fund its own energy transition. And it's looking for an oil price and a relationship which is conducive for that."

The White House has also said it is monitoring Russia's actions in natural gas markets, as prices in Europe and Asia have soared fivefold this year. Some lawmakers in Europe and the US have blamed Moscow for exacerbating the gas price surge by restricting supplies to Western Europe.

Bob McNally, head of Rapidan Energy Group and a former adviser to the George W Bush White House, said the decision by Opec+ could prompt a response from consumer countries.

"Given the complete rebuff by Opec+ and President Biden's clear threats to respond, odds of a US if not an International Energy Agency strategic stock release are rising fast along with other retaliatory options," he said.

Under the current plan, Opec+ will add 400,000 bpd every month until the end of 2022, restoring oil supply removed last year after the US cajoled Saudi Arabia and Russia to make record deep cuts to prop up an industry devastated by the pandemic.