Saudi Arabia and Iran, among the world’s largest oil producers, are offering competing narratives over oil supply needs for the second half of the year. Divisions among key OPEC producers run deep, with competing perspectives emerging in statements Thursday on whether or not to increase oil production.
U.S. President Donald Trump turned again to twitter this week to complain to OPEC that oil prices, at around $75 per barrel for Brent, the global benchmark, were too high. Ironically, it was Trump’s decision to pull out of the Joint Comprehensive Plan of Action and eventually limit Iranian export options that helped sustain a higher price for oil.
Brent, however, has been stuck in the middle of the $70 per barrel range since Trump’s decision on JCPOA. Brent was priced at $45.47 per barrel on this date last year and the increase has led to concerns about the impact of Trump’s tax breaks for taxpayers and the overall consumer benefits from a strong global economy in general.
Saudi Arabia, a strong U.S. ally, has hinted, with Russian support, that it could put more oil on the market in the second half of the year as supply risks emerge because of Iran and chronic shortages from Venezuela. Saudi Oil Minister Khalid al-Falih was quoted by Bloomberg News as saying Thursday an increase in oil production from the Organization of Petroleum Exporting Countries was “inevitable,” but would come as the result of “a reasonable and moderate agreement.”
Saudi Arabia is the lead producer and de facto leader in OPEC. Iran, a political adversary, has said that OPEC must act with unity, tacitly complaining that Riyadh was making unilateral decisions for the producer group. In an interview published Thursday by commodity pricing group S&P Global Platts, Hossein Kazempour Ardebili, the Iranian governor to OPEC, said there’s no need to ramp up production.
“Fundamentals at these prices show that we don’t need extra barrels in the market,” he said. “The market is now in a balanced position with prices around $70 per barrel.” Earlier this week, the International Energy Agency said it was ready to take stimulus measures should a lopsided market warrant action from its member states.
OPEC ministers are expected to review the agreement at their regular meeting next week in Vienna. A report emailed to UPI from RBC Capital Markets said Saudi Arabia’s go-it-alone sentiment raises questions about the durability of the collective agreement to stabilize a market working to put $30 per barrel crude oil in the rear view mirror. For the Trump administration, meanwhile, it needs to walk a fine line between pressuring Iran, one of OPEC’s largest producers, and protecting taxpayer pocketbooks. For Riyadh, it needs to respect its alliance with the United States, while at the same time supporting a price of oil that’s high enough to prop up its own economic agenda.
RBC predicts OPEC members will put some more oil on the market. “Nonetheless, we could envision a scenario where the meeting proves to be so antagonistic because of deep divisions over production and sanctions that they fail to reach a consensus, leaving big producers like Saudi Arabia and Russia to act on their own,” the report read. UPI
