President Donald Trump has determined there was enough crude oil and oil products supply globally to offset any loss of supply from Iran after U.S. sanctions enter into force next week.
In a memorandum, Trump said “there is a sufficient supply of petroleum and petroleum products from countries other than Iran to permit a significant reduction in the volume of petroleum and petroleum products purchased from Iran by or through foreign financial institutions.”
The memorandum also mentioned there was enough spare production capacity globally to allow for any necessary production increase. Amid growing worry about the global economy, however, the necessity for any production increases in oil has been questioned by analysts and Saudi Arabia’s Energy Minister, Khalid al-Falih, although Falih also separately said the Kingdom will continue to boost production this month.
Earlier this week, Reuters reported that the world’s top three producers—Russia, the United States, and Saudi Arabia—pumped 33 million bpd combined in September. A month later, Russia’s production alone hit another post-Soviet record of 11.41 million bpd.
These figures are in line with the sentiment expressed by President Trump and expectations by some observers that the effect of the sanctions’ entry into effect on prices will be moderate. This is what the Congressional Research Service’s top Iran expert Kenneth Katzman said, commenting on Trump’s memorandum, as quoted by the Washington Examiner.
Recent reports that Iran’s oil exports ahead of the sanctions were higher than earlier estimated also provided fuel for expectations of a moderate price effect, as did the news that Washington has granted India a waiver from the sanctions, obviously satisfied with the nation’s efforts to reduce its imports from Iran.
Sanctions against Iran will enter into effect on November 5 at midnight, a day before the mid-term elections in the United States. Keeping a lid on oil prices ahead of the vote has been a priority for the Trump administration.
By Irina Slav for Oilprice.com
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The truth of the matter is that this is an admission by President Trump President that his sanctions against Iran’s oil exports are doomed to fail miserably and that Iran is going to lose a single barrel from its oil exports. This admission follows in the footsteps of US Treasury Secretary Steven Mnuchin’s back tracking from zero imports to willingness to issue sanction waivers to purchasers of Iranian crude provided they reduce their purchases by 20%.
Furthermore, the claim by President Trump that there is enough oil to offset Iran loss couldn’t have been the result of Saudi Arabia and Russia adding 650,000 barrels a day (b/d) to the global oil market two months ago. The truth of the matter is that the global oil market has never re-balanced completely and that there is still a pocket of glut capable of taking care of outages in Venezuela and elsewhere.
The global oil market is starting to believe that US sanctions against Iran are doomed to fail miserably and that Iran will not lose a single barrel from its oil exports, a view that I have been expressing for more than eleven months based on market real.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London