OPEC along with other participants in the cartel’s supply cut agreement have denied US President Donald Trump’s demand to boost crude production. Xinhua News photo.
OPEC decision boosts oil prices Monday
OPEC and its allies in the cartel’s supply cut agreement decided on Sunday to rebuff demands from US President Donald Trump to boost their production to contain rising oil prices.
Responding to Trump’s tweet from last week where he called for the Organization of Petroleum Exporting Countries to “get prices down now!”, Saudi Arabia’s Oil Minister, Khalid al-Falih, said “I do not influence prices” while speaking to reporters following the cartel’s meeting in Algiers.
By 1:54 p.m., on Monday, oil prices rose significantly with Brent jumping 2.81 per cent to $80.44/barrel and US WTI climbing $1.38 to $72.16/barrel.
At the meeting, Falih said Saudi Arabia has the spare capacity to boost its output, but the kingdom does not believe an increase is necessary and may not be needed in 2019, according to OPEC’s projections. The cartel argues that rising production in non-OPEC countries could exceed global demand growth.
“The markets are adequately supplied. I don’t know of any refiner in the world who is looking for oil and is not able to get it,” Falih said. He added that Saudi Arabia could raise production by up to 1.5 million barrels per day (b/d) if demand increased.
“Given the numbers we saw today, that (an output increase in 2019) is highly unlikely unless we have surprises on the supply and demand,” Falih added.
Meanwhile, Tehran has said Trump is behind the increase in oil prices because he opted to reimpose sanctions on Iranian crude exports. Iran also accused Saudi Arabia of bowing to pressure from the United States.
Reuters reports that Iranian Oil Minister Bijan Zanganeh said Trump’s tweet “was the biggest insult to Washington’s allies in the Middle East”.
To back up its decision, OPEC released a mid-term report on Sunday which forecast that supply from non-OPEC countries will increase by 2.4 million b/d next year and global demand is expected to grow by just 1.5 million b/d.
The report also showed that US crude output is expected to continue to grow to 2023 and also predicted that OPEC would lose more market share as a result.
“Our attention is shifting to 2019. We have been briefed on the prospect of 2019 inventory builds which result from significant supply growth from non-member counties,” Falih said.
Russia’s Energy Minister Alexander Novak agrees and says there is no need to increase output. However, he said the ongoing trade war between the US and China along with US sanctions on Iranian crude are creating new challenges for oil market.
“Oil demand will be declining in the fourth quarter of this year and the first quarter of next year. So far, we have decided to stick to our June agreements,” Novak said.
In early 2017, to cut the global oversupply and boost prices that had fallen below $30/barrel, OPEC and its allies agreed to cut their output by 1.8 million b/d. Since then, plummeting production in Venezuela along with fluctuating Nigerian output resulted in much higher reductions in overall OPEC output.
Last June, the group agreed to increase its production to return to 100 per cent compliance, which is about a 1 million b/d increase. According to Reuters, the latest data shows the group is not close to reaching this goal.
One factor impacting OPEC’s goal to boost production is a drop in Iranian crude exports as the country’s European and Asian customers comply with the Trump administration’s demands to cut out Iranian crude purchases.
OPEC’s secondary sources along with researchers and ship-trackers tell Reuters that Iran’s current production sits at 3.58 million b/d, down about 300,000 b/d from the beginning of the year.
On Sunday, Hossein Kazempour Ardebili, Iran’s OPEC governor softened his stance on possible increases in the cartel’s overall output.
“If there is a fall not only from Iran, but anybody else, it is the responsibility of OPEC and non-OPEC to balance the market,” Reuters reports Kazempour told reporters.
Falih said returning to 100 per cent compliance with the 2017 pact was the cartel’s main objective. He predicts this goal should be achieved within the coming two to three months.
While Saudi Arabia is the only OPEC producer with spare capacity, it remains unclear how this will be achieved.
“The biggest issue is not with the producing countries, it’s with the refiners, it’s with the demand. We in Saudi Arabia have not seen demand for any additional barrel that we did not produce.”
The next meeting for the cartel and its allies will be on Nov. 11 in Abu Dhabi. OPEC will meet again in Vienna on Dec. 6-7.