Oil prices rallied on Wednesday afternoon despite the fact that OPEC/NOPEC’s compliance fell from 147 percent in May to around 120 in June, according to sources cited by Reuters.
At 9:15pm EDT on Thursday, WTI was trading down 1.00% at $67.07, while Brent crude was trading down 0.78% at $72.33. Both benchmarks were trading down for the week. Earlier in the day, the Energy Information Administration (EIA) had reported a surprise build in crude oil, with prices set to fall on the news.
OPEC’s compliance to the production cut deal forged in November 2016 reached 181 percent in April 2018 before falling to 147 percent in May.
The previously higher oil prices as the result of OPEC’s overachievement of the production cut deal also resulted in corresponding high prices at the pump. President Donald Trump has repeatedly called out the cartel for its manipulation of prices using his favorite medium: Twitter. “Oil prices are too high, OPEC is at it again. Not good!” one of Trump’s Tweets read a few weeks ago. That Tweet was followed just days later with yet another dig at OPEC: “OPEC is at it again.”
In late June, OPEC had agreed to back off its overzealous commitment to the production cut deal and bring its production up so its compliance would be closer to 100%. Many had assumed that it would be Saudi Arabia and Russia who would shoulder the burden of increasing oil production to come closer to the original terms of the deal. Both Saudi Arabia and Russia have sent positive signals to the market that they are willing to increase production to ensure a well-supplied market.
Russia started to increase production even before the meeting took place in June, raising production to 11.09 million barrels of crude oil per day in the first week of June.
By Julianne Geiger for Oilprice.com
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Saudi Arabia decided to increase its 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 November midterm 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.
Saudi cosiness to the Americans is well documented. Since the discovery of oil in Saudi Arabia at the start of the 20th century, the Saudis have quenched American thirst for oil, financed their wars and done their bidding. Is it not time for them to start looking after their own interests. They should realize that the United States is part of the problem for Saudi Arabia and not part of the solution.
The US and Israel will drag Saudi Arabia and the whole Gulf region into a war with Iran that could be damaging to all of them. Moreover, it is high time for the Saudis to realize that the risk of American litigation against them vis-à-vis the 9/11 will always be like a Damocles’ sword over their heads.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London