U.S. Energy Secretary Rick Perry believes that Saudi Arabia and Russia will be able to boost their oil production to stabilize the oil market and compensate for losses of Iranian oil supply.
"I am comfortable that Saudi Arabia is going to be able to increase their production to... 11 million barrels per day going forward, and that Russia will be able to increase their production, so the worldwide crude market does have some stability," Secretary Perry said at a press conference at the World Gas Conference in Washington, D.C.
"We look at this as an opportunity for the OPEC members to fill this gap, if you will," he said, as carried by Reuters.
Earlier this week, analysts expected that Secretary Perry might ask his Russian counterpart Alexander Novak for more oil to compensate for lost supply from the Iranian sanctions when they meet this week at the World Gas Conference in Washington.
Meanwhile, Saudi Arabia is said to be preparing to pump its highest-ever volumes of oil this month and next-around 11 million bpd of oil in July, and 10.8 million bpd in June.
The United States is pushing to cut as much Iranian oil off the market as possible, while Saudi Arabia and Russia were the masterminds of OPEC's agreement last week, which was vague on the production boost and just said that the cartel and allies would aim for a 100-percent compliance rate instead of record-breaking more-than-100-percent compliance.
According to Saudi Arabia, this means that there would be reallocation in quotas.
Related: Tehran: Taking Iran's Oil Out Of The Market Is 'Impossible'
"Some of the countries ... are not going to be able to produce, so the others will. And that implies there will be indirectly a reallocation," Saudi Energy Minister Khalid al-Falih said on Saturday.
In the past two months, U.S. President Donald Trump criticized OPEC twice for manipulating oil prices, calling the cartel out for oil prices that are 'too high'.
On the day of the OPEC meeting last Friday, President Trump tweeted again: "Hope OPEC will increase output substantially. Need to keep prices down!"
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More
Comments
The second assumption is that you are taking it for granted that US sanctions will lead to a significant loss of Iranian oil exports. This is not going to happen. Iran’s trump card is the petro-yuan which has virtually nullified the effectiveness of US sanctions. That is why I have been projecting that Iranian oil exports will not lose a single barrel of oil as a result of the US sanctions.
The third assumption is that Saudi Arabia can raise its oil production to 11 million barrels of oil a day (mbd). Saudi claim that it can produce at least 12.5 mbd if needed doesn’t stand scrutiny. Saudi Arabia’s production never exceeded 10.4 mbd before with almost a million barrels of which coming not from actual production but from stored crude oil on tankers and on land. Saudi Arabia is only able to raise its oil production by 400,000 b/d being the amount it cut under the OPEC/non-OPEC production agreement. Moreover, Saudi Arabia’s claim that it has a spare production capacity of 2 mbd is very questionable.
Saudi oil production peaked in 2005 at 9.6 mbd and has been declining since with depletion rates in its major oilfields including the giant Ghawar estimated at 5%-7%. Ghawar accounts for more than 50% of current Saudi production. A depletion rate of that magnitude means that Saudi Arabia has to add annually some 500,000-700,000 barrels a day to maintain current oil production. This has not been happening to all intents and purposes.
Russia can only add up to 300,000 barrels a day (b/d). Still, Russia has every reason to ignore US sanctions against Iran and to continue to implement the oil-for-goods barter trade agreement with Iran having been subjected to US sanctions against it since 2014.
And with the exception of the recent Canadian outage amounting to 360,000 b/d, all the other outages from Venezuela to Libya and Nigeria have been factored in by the global oil market long time ago.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London