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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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OPEC Won’t Take Additional Action As Oil Prices Rise

OPEC is doing its best to offset supply disruptions around the world, but it has no intention of “overdoing it”, Bloomberg reports, citing the cartel’s president, UAE’s energy minister Suhail al-Mazrouei.

“It’s unfair to say that OPEC is not doing its part,” Al-Mazrouei said, referring to President Donald Trump’s Twitter tirade against the cartel for not doing enough to rebalance the market. “There are things outside of our hand, the geopolitics as well as how much production is coming from the shale oil and Canadian sands.”

There have been reports that Saudi Arabia has boosted its oil production by almost half a million bpd in June, and the UAE has spare capacity of between 400,000 and 600,000 bpd, Al-Mazrouei said, adding that OPEC as a whole has enough spare capacity to offset any shortage.

Last month, OPEC and Russia agreed to boost production by a million barrels daily to reduce prices that had gotten uncomfortably high for the biggest importers. At the time, Saudi Arabia’s Khalid al-Falih said the number was “nominal” since not all OPEC members had the spare capacity to boost production. But now there is growing worry that even a one-million-bpd increase will not be enough. Related: Chinese Refiner Stops U.S. Oil Imports, Turns To Iranian Crude

The United States wants to cut Iran’s oil exports of crude to zero barrels from more than 2 million bpd at the moment. Saudi Arabia has stated it has spare capacity of 2 million bpd, but bringing it back online—if it is indeed so large—will take more than a day or two, analysts have warned. In fact, it could take as long as a year to boost production by 2 million bpd.

This has had traders worried that the market is in for a shortage, which will cause prices to jump even higher, with some forecasting Brent at over US$100 a barrel.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on July 10 2018 said:
    OPEC shouldn’t have been persuaded by Saudi Arabia and Russia to agree to raise its production by 1 million barrels a day (mbd) in its meeting on the 22nd of June. There was no justification for increasing production as the global oil market has not re-balanced completely. The proof is that oil prices have been hovering for the last two months around $73-$77 a barrel otherwise the price would have gone beyond $80 by now had the market re-balanced.

    Until president Trump asked Saudi Arabia a month ago to lift its oil production to offset any shortfall in Iran’s oil exports as a result of the forthcoming US sanctions, nobody not even Saudi oil minister Khalid al-Falih ever talked about a supply gap in the market. Suddenly everybody started parroting about the need of more supplies to plug a hole in the global oil market.

    The oil market has not re-balanced yet completely. There is still a bit of glut in the global oil market capable of taking care of outages in Venezuela, Libya, Angola and Nigeria. Moreover, these outages are not new. They have been factored long time ago by the global oil market so they will hardly have any impact on oil prices.

    OPEC members need an oil price of $100 to balance their budgets. They should therefore aim to maximize the return on their finite assets to the highest level the global economy can tolerate. They should also look after their own interests and not listen to calls from President Trump on oil prices or levels of production.

    After all, President Trump’s worry about oil prices has nothing to do with US sanctions on Iran as his sanctions will not succeed. It is about his worry that rising oil prices will offset the benefits from his tax cuts and thus cost his republican party the midterm elections of the US senate and the US House of Representatives in November this year.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • sdlajf on July 10 2018 said:
    OPEC is now a price taker, they are producing flat out with zero sustainable spare capacity and only account for 30% of the global market. They have no real influence nor ability to stop prices from rising higher if there isn't enough oil being produced from ex-OPEX sources.
  • David Jones on July 11 2018 said:
    Hmm, interesting. Has the oil industry already started losing control over the product? Probably too early for that in my opinion but this does not sound particularly rosy. It could be that the intention is to allow a short term spurt in order to replenish the coffers. It could also be that the attempt to break OPEC market control has actually resulted in no control for anyone. Time will tell.

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