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Saudi-Russia Reassurance on Oil Supply Lacks Solid Guarantees

U.S. President Donald Trump’s demand that OPEC take rapid action to reduce oil prices got a tepid response, with the group saying it would boost output only if customers requested it.

In contrast to the dramatic policy U-turn that Trump’s tweets provoked earlier this year, Saudi Arabia, Russia and their allies signaled less urgency and stopped short of promising specific extra volumes of crude.

“Our plan is to meet demand,” Saudi Energy Minister Khalid Al-Falih said after meeting with fellow ministers in Algiers on Sunday. “The reason Saudi Arabia didn’t increase more is because all of our customers are receiving all of the barrels they want.” The kingdom does expect to pump more in September and increase again in October, he said.

Khalid Al-Falih

Photographer: Stefan Wermuth/Bloomberg

The Organization of Petroleum Exporting Countries and its allies are just halfway toward their June pledge to pump an extra 1 million barrels a day of crude to fill the gap created by an economic collapse in Venezuela and renewed U.S. sanctions on Iran. Al-Falih, who openly voiced concerns about the strength of demand and expanding oil stockpiles, said they may only reach that target in two to three months.

The lack of an immediate response to Trump’s demand adds to speculation about the group’s ability, or willingness, to push oil down from near $80 a barrel. It suggests the president’s goal of crippling Iran’s economy through sanctions without significantly raising prices could prove elusive.

“It’s a time of great uncertainty in oil markets, from Iranian output post-sanctions to the global economy and demand,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University in New York and a former Obama administration oil official. In Algiers, Saudi Arabia and others have given themselves “the flexibility to respond to changing market conditions.”

It’s unclear whether that will be enough for Trump. Brent crude rose above $80 a barrel last week, provoking the U.S. president to direct his first social-media barb against the cartel since July 4. He was returning to a playbook that won him a significant victory in June as OPEC and its allies agreed to roll back production cuts and pump an extra 1 million barrels a day.

Russia followed through on that promise, with recent data showing its production jumped to a new post-Soviet record. Yet Saudi Arabia’s own output actually dropped in July amid signs it couldn’t find enough buyers. Suggestions of record production of near 11 million barrels a day didn’t materialize and the kingdom has hovered near 10.4 million since June.

Saudi Capacity

“Saudi Arabia is uncomfortably squeezed,” said Bob McNally, founder of consultants Rapidan Energy Group in Washington. The kingdom had “limited spare capacity” to compensate for the loss of Iranian supplies, he said.

Demand for Saudi crude could potentially rise to 10.5 million or 10.6 million barrels a day in October, and Al-Falih assured reporters the kingdom could satisfy that by tapping spare capacity. “If demand is 10.9 million barrels a day, you can certainly take it to the bank that we will meet it,” he said.

Still, deepening output losses in Iran and Venezuela meant the compliance rate of OPEC and its allies — the proportion of their 1.8 million barrel-a-day output cuts achieved each month — was 129 percent in August, leaving them about 500,000 barrels a day short of their June pledge.

Libya Improves

There was good news from Libya, where oil production has climbed as high as 1.278 million barrels a day, the most since 2013, said Mustafa Sanalla, chairman of the state-run National Oil Corp. If sustained for the whole month, that would be an increase of about 600,000 barrels a day since June, keeping pace with the drop in Iran’s exports over the same period.

Output could go even higher if the security situation improves, Sanalla said, but numerous threats remain. A deadly Islamic State attack on NOC’s headquarters in Tripoli this month “exposes the fragility of security arrangements in Libya,” he said.

Demand Worries

Saudi Arabia is worried about the strength of the global economy, and Al-Falih said there are signs the market is well supplied. “We have topped our storage to the maximum because the demand hasn’t materialized,” he said.

There is a draft framework for OPEC and its allies to continue working together into 2019, which they expect to ratify in December, Al-Falih said. Rapid growth in U.S. production means that oil stockpiles could expand again next year, but it’s too early to say whether the production limits agreed in 2016 would need to remain in place, he said.

Several ministers also offered general commitments to keep markets well supplied, without taking aggressive steps to do so.

Russian Energy Minister Alexander Novak told reporters that his country has the capacity to increase production by several hundred thousand barrels a day in the short term, but using it would depend on the market. The United Arab Emirates has spare production capacity but won’t overuse it, said Energy Minister Suhail Al Mazrouei.

“The Saudis are probably right that market is well-supplied,” Joe McMonigle, an energy analyst at Hedgeye Research, said in a post on Twitter. “But market stability to Trump means lower prices (or at least not higher prices). Mr. Market votes tomorrow.”

bloomberg



17 Comments on "Saudi-Russia Reassurance on Oil Supply Lacks Solid Guarantees"

  1. I AM THE MOB on Mon, 24th Sep 2018 10:20 am 

    Zerohedge is spreading baseless conpsirciy theories that Kavanaugh’s accuser’s father worked for the CIA with ties to the deep state..

    https://www.zerohedge.com/news/2018-09-23/exposed-cia-honeytrap-set-kavanaugh-accuser-cia-ties

    What kind of morons believe this stuff? Besides Davy..

    LMFAO!

  2. Davy on Mon, 24th Sep 2018 10:46 am 

    I am a blob, is this a baseless conspiracy?

    “Calendars From 1982 Show Kavanaugh Was “Out Of Town” When Ford Assault Allegedly Took Place”
    https://tinyurl.com/y9n24ww5

    “The calendar pages from June, July and August 1982, which were examined by The New York Times, show that Judge Kavanaugh was out of town much of the summer at the beach or away with his parents. When he was at home, the calendars list his basketball games, movie outings, football workouts and college interviews. A few parties are mentioned but include names of friends other than those identified by Dr. Blasey.”

  3. Outcast_Searcher on Mon, 24th Sep 2018 12:05 pm 

    As usual, the market will work.

    Either the global production of oil will rise over time fast enough to supply rising demand, or it won’t.

    If it won’t, prices will rise to compensate, just like they always do. And when they rise, they will incentivize using less, using alternatives. Having people drive PHEV’s, BEV’s, HEV’s, efficient ICE’s, driving less, or even biking, walking, or taking the bus, carpooling, etc. is NOT the end of the world — it is an inconvenience.

    Despite the endless assertions of the Cassandras that people can’t adapt and that things never can get better — people CAN and WILL adapt if incented enough, and technology improves a lot over time. Oh, and the energy intensity of the global economy continues to persistently decline.

  4. I AM THE MOB on Mon, 24th Sep 2018 12:21 pm 

    Davy

    You think a 17 year old puts on his calendar that he is going to an all night bender with his friends?

    You are so dumb it’s almost unbelievable..Typical white trash religious nut job..

  5. I AM THE MOB on Mon, 24th Sep 2018 12:24 pm 

    Nick Cunningham on Twitter “Bank of America warns oil could be headed to 08 levels again”

    https://twitter.com/nickcunningham1/status/1044222743254888455

  6. I AM THE MOB on Mon, 24th Sep 2018 12:30 pm 

    Conservative Radio Host Tells Women to Shut Up and Take It

    https://washingtonmonthly.com/2018/09/24/conservative-radio-host-tells-women-to-shut-up-and-take-it/

  7. Davy on Mon, 24th Sep 2018 1:03 pm 

    “You think a 17 year old puts on his calendar that he is going to an all night bender with his friends?”

    Why wouldn’t he stupid the calendar was his personal calendar. You being dishonest and without morals are buying into all this.

    Kunstler has this dog and pony show figured out:

    “Going Full Porn”: Jim Kunstler Fears Ramirez’s Recollections Are Declaration Of War By The ‘Resistance’
    https://tinyurl.com/y9eny6mw

  8. Darrell Cloud on Mon, 24th Sep 2018 1:24 pm 

    Mob it does appear you are captured by your own set of conspiracy theories. What pray tell does a supreme court nominee have to do with oil production?

  9. Anontarded1 on Mon, 24th Sep 2018 1:28 pm 

    aswange, two pieces of bad news. inflation in phils is 9% and gone off the charts while dutere in powa.

    the other is destruction of mawari due to “religious” conflicts. here again, it’s fake newspeak for islam. there’s only one cult involve and it’s islam. Someday supertards will declare muslims combatants and it will be over in a few minutes

    thanks to religion of peace
    https://thereligionofpeace.com/

    https://www.motherjones.com/crime-justice/2018/09/religious-war-philippines-marawi-city-isis-muslim-rebles/

  10. I AM THE MOB on Mon, 24th Sep 2018 3:42 pm 

    Davy

    You are as dumb as they come..I am done arguing with someone who only reads kunstler and zerohedge..You are the lunatic fringe..

  11. Davy on Mon, 24th Sep 2018 3:48 pm 

    You are done whining because you look like the normal idiot you portray here daily.

  12. I AM THE MOB on Mon, 24th Sep 2018 4:07 pm 

    2018 in a nutshell

    https://i.redd.it/6qeiwrtvo8o11.jpg

  13. I AM THE MOB on Mon, 24th Sep 2018 4:14 pm 

    Tesla made a big deal out of its Solar Roof in 2016, but two years later it has barely shipped any

    https://www.cnbc.com/2018/09/24/tesla-solar-roof-tiles-where-are-they.html

  14. Davy on Mon, 24th Sep 2018 4:21 pm 

    “2018 in a nutshell”

    Kinda funny how the board rapist braggart is crying crocodile tears now over accusations of rape. Let’s rename him “I am a hypocrite.”

  15. Sissyfuss on Mon, 24th Sep 2018 7:19 pm 

    Hey Khalid, is that your nose or is a camel sitting on your face?

  16. Anonymouse1 on Mon, 24th Sep 2018 7:48 pm 

    Still talking to your own sock puppets I see, davy-dumbass? Bi-polarity for the win.

  17. I AM THE MOB on Mon, 24th Sep 2018 8:10 pm 

    Oil market hears echoes of 2007/8: Kemp

    https://www.reuters.com/article/us-oil-opec-kemp/oil-market-hears-echoes-of-2007-8-kemp-idUSKCN1M41NF

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