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U.S. President Trump is wrong to expect that Saudi Arabia and other large producers can compensate for the decline in Iranian crude oil supply resulting from the renewed U.S. sanctions against Tehran, Iran’s OPEC governor told Reuters.
“It seems President Trump has been taken hostage by Saudi Arabia and a few producers when they claimed they can replace 2.5 million barrels per day of Iranian exports, encouraging him to take action against Iran,” Hossein Kazempour Ardebili said a day after a Reuters poll suggested that OPEC’s total production this month had only risen by a modest 70,000 bpd.
Last month President Trump called on OPEC to boost production because of the inexorable price rise prompted by the Iran sanctions and the steady decline in Venezuela’s oil production along with supply uncertainty regarding Libya.
Trump was not alone in this call: India is also unhappy with higher prices and has been vocal about it, but despite assurances from OPEC—notably from Saudi Arabia’s Khalid al-Falih—prices have been reluctant to go down substantially, with Brent currently hovering around US$74 a barrel and WTI at around US$70.
As soon as these assurances were made, doubts arose regarding Saudi Arabia’s as well as other producers’ actual ability to boost supply quickly enough to rein in prices. Although Riyadh is firm that it could add more than a million barrels daily to its production, the question remains how quickly this could happen. Russia, the world’s largest producer to date, would also be hard put to increase production significantly enough and fast enough.
“Now they and Russia sell more oil and more expensively. Not even from their incremental production but their stocks,” Ardebili told Reuters, echoing comments that Saudi Arabia’s stated spare capacity is actually lower than its actual spare capacity, and the Kingdom is using its substantial stockpiles at home and abroad to increase supply.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.