Saudi Arabia is expecting a reduction in crude oil exports next month, despite earlier signs that Saudi Arabia—and Russia—have started to raise production even before the June 22 meeting with OPEC that sought to address the shrinking global oil supply and corresponding rising prices.
Saudi Arabia is now expecting crude oil exports to dip by 100,000 bpd in August, according to a Reuters report, after yesterday reports that OPEC had increase production to more closely reflect the production cut agreement forged at the end of November 2016. While it initially took a while for OPEC members to gain traction in cutting production to the agreed upon levels, soon OPEC was over-complying thanks to additional cuts from Saudi Arabia and Venezuela.
Earlier reports had President Donald Trump just weeks ago asking Saudi Arabia to increase oil production to make up for shortfalls in Venezuela as well as anticipated shortfalls in Iran as we close in on November when the US sanctions against Iran take effect.
President Trump took to Twitter in late June, when oil prices were on the rise as many feared tightening oil supplies. "Just spoke to King Salman of Saudi Arabia and explained to him that, because of the turmoil & disfunction in Iran and Venezuela, I am asking that Saudi Arabia increase oil production, maybe up to 2,000,000 barrels, to make up the difference...Prices to high! He has agreed!"
With or without Trump’s participation in Middle Eastern oil matters, Saudi Arabia looked ready to increase production, with days earlier reports showing that it was planning a record production level in July of 10.8 million bpd—Saudi Arabia’s highest level—as it sought to raise exports in an effort to calm market fears that the market was overtightened. Related: World’s Biggest Oil Trader Launches Renewables Fund
But today, Adeeb Al-Aama, Saudi Arabia’s OPEC governor, said that the Kingdom’s July crude oil exports would be similar to June’s, and that August’s exports would be 100,000 bpd below that. These export figures do not match what is thought to be Saudi Arabia’s record oil production in July, or the cartel’s earlier commitment to raise oil production—and theoretically, exports—to cool oil prices.
OPEC’s commitment in June was to bring compliance to the OPEC production cut deal closer to 100%--which would equate to about a 1 million bpd increase in production.
WTI was trading up 0.35% at $67.99 on the news, with Brent crude still trading down 0.82% at $72.30 at 2:24pm EDT.
By Julianne Geiger for Oilprice.com
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Still, there was no justification for Saudi Arabia to increase oil production against the wishes of OPEC and against the vital interests of its own economy and the economies of OPEC members just to help President Trump’s party win the midterm November Congressional elections. Saudi Arabia and the majority of OPEC members need an oil price of $80-$100 a barrel to balance their budgets. Moreover, the Saudi economy was the most adversely affected as a result of the 2014 oil price crash.
The global oil market has not completely re-balanced. There is still a bit of glut capable of taking care of the outages in Venezuela, Libya, Nigeria and Canada. The proof is that oil prices have been hovering for the last three weeks around $72-$77 a barrel rather far above $80.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London