US administration backs off on Trump's Saudi oil production tweet

Alicia Cross
July 2, 2018

Earlier in the day, Trump said that Saudi Arabia's King Salman has agreed to his request of raising the oil production "maybe up to 2,000,000 barrels" in order to bring prices down.

President Donald Trump says he has received assurances from King Salman of Saudi Arabia that the kingdom will increase oil production, "maybe up to 2,000,000 barrels", in response to turmoil in Iran and Venezuela.

Saudi Arabia along with other Organization of Petroleum Exporting Countries (OPEC) and non-OPEC nations, including Russian Federation, had agreed on June 22 to boost production by a combined 700,000 to 1 million barrels a day, so any 2 million bpd-increase would be at least double market expectations.

"President Trump's reckless decision to pull out of the Iran deal has led to higher oil prices", Senate Minority Leader Charles Schumer, D-N.Y., said last month during a photo op outside an Exxon station. Any 2 million bpd-increase would thus be at least double market expectations.

However, a source familiar with Saudi Arabia's production plans told Reuters earlier in the week of the kingdom's intention to increase output by 200,000 bpd this month.

A week ago OPEC and its allies including Russian Federation agreed to boost supplies, easing curbs in place since the start of 2017. The cartel, which had curtailed production in 2016, also said it would boost output more later in the year to offset limits on Iranian oil sales resulting from the re-imposition of US sanctions on Iran.

FGE, an energy consultancy, said in its June newsletter that the U.S. is determined to "push Iran's exports to zero". Trump past year chose Saudi Arabia for his first foreign trip.

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The Trump administration has been counting on Saudi Arabia and other OPEC members to supply enough oil to offset the lost Iranian exports and prevent oil prices from rising sharply.

Oil prices hit $80 a barrel this year for the first time since 2014, prompting consumers like the United States to raise concerns. It closed Friday at $79.44 a barrel.

But OPEC's promises did not settle the markets, and crude oil futures have spiked since the meeting.

The Opec oil producers' group agreed to increase output, as did Russian Federation, but this failed to reassure markets. He questioned whether Trump's words would do anything to reverse the effects on the market of declining Iranian oil production. Estimates of how much spare capacity or quickly accessible oil is available vary, but most experts think it would be challenging to cover a large drop in Iranian exports combined with other outages.

The Saudi government said on its official website that the two leaders had spoken about oil production, but avoided suggesting any specific deal had been struck.

Besides the looming USA sanctions against Iran, which is fueling the rally in Brent futures, and the outage in Canada, which is supporting WTI crude, both markets are also benefitting from supply issues in Venezuela and Libya.

Other reports by Free-Prsite

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