Saudis Pledge Crude Oil Supply Boost to Benefit Consumers
- The only country that can increase production is Saudi Arabia, so its interpretation of the deal is the 1 that matters.
- The Crude Oil is already on the water!
Saudi Arabia promised to act decisively to keep Crude Oil prices under control, signaling a real supply boost approaching 1-M BPD is on the way to global markets.
“We will do whatever is necessary to keep the market in balance,” Saudi Energy Minister Khalid Al-Falih told reporters Saturday, while sitting alongside his Russian counterpart Alexander Novak at OPEC HQ’s in Vienna.
Consumers can rest assured that “their energy supplies are available, are being stewarded by a responsible group of producers.”
Al-Falih went out of his way to give a detailed explanation of how the OPEC+ deal will work, clarifying a vaguely worded agreement and contradictory statements from other ministers that spurred a rally in Crude Oil futures Friday.
It would be troubling if that jump in prices became a trend, the Minister said, adding that producers with spare capacity, such as Saudi Arabia, can fill any gap left by falling production elsewhere.
Al-Falih’s assurances, backed up by Novak follow pressure from US President Donald Trump’s anti-OPEC Tweeting, as well as more conventional lobbying by major Crude Oil buyers.
They give Saudi Arabia and Russia more room to ease consumer anxiety about prices, but risk a backlash from Iran and Venezuela, founder members of the Organization or Petroleum Exporting Countries that insist members cannot snatch one another’s market share.
Friday’s deal between OPEC members pledged a “nominal” supply increase of 1-M BPD.
In reality, ministers said several countries are unable to pump more so the real output boost would have been smaller, ranging from Iran’s 500,000 BPD estimate up to Iraq’s prediction for as much as 800,000 BPD.
The vague wording of that agreement left it open to such a broad range of interpretations and, helping to secure a last-minute compromise that overcame Iranian opposition to any increase.
Nominal Vs Real
Saturday’s accord, in which non-OPEC countries ratified the previous day’s deal, dropped the pledge that the 1-M BPD increase should be shared proportionally among members, opening the way for the full volume to flow, Al-Falih said.
“If we allocated the number pro-rata basis among the 24 countries, given the capacity of those countries that can increase, it had been estimated that about 60% will be achieved,” Al-Falih said. “But because we went away from allocation on a pro-rata basis, we will be closer to 1-M than to 600,000 barrels a day.”
The group’s communique pledged a return to 100% compliance with the original Y 2016 agreement ending a period of deeper-than-intended cuts, but Al-Falih insisted that no individual country will be subject to a strict output cap.
Minister Novak is fully aligned with Al-Falih, saying Russia would contribute as much as 200,000 BPD to the supply boost.
“The decision is very straightforward.” UAE Energy Minister Suhail Al Mazrouei gave similar assurances.
Al-Falih also said the OPEC+ Joint Ministerial Monitoring Committee, which has overseen the group’s supply cuts, will play a Key role in managing how production is increased.
Both Russia and Saudi Arabia are members, and the committee’s increasing importance will help cement their dominance over a coalition that pumps more than 50% the world’s Crude Oil.
Saudi Aramco anticipated this week’s decision and was already ramping up output, Al-Falih said. He declined to say how much the Kingdom would pump in July, but promised a month-on-month hike in the order of “100s of thousands of barrels” rather than “10s of thousands.”
Tanker-tracking data for early June showed a significant jump in shipments from the Kingdom.
“The Oil is already on the water,” said the head of tanker tracker company Petro-Logistics SA in Geneva.
Have a terrific week.