US President Donald Trump, after a series of
failed tweets before the 174th general meeting of the Organization
of the Petroleum Exporting Countries (OPEC) to persuade some members to ramp up
their production, said in his latest tweet earlier this week: “Just spoke to
King Salman of Saudi Arabia and explained to him that, because of the turmoil
& disfunction in Iran and Venezuela, I am asking that Saudi Arabia increase
oil production, maybe up to 2,000,000 barrels, to make up the difference...Prices
to high! He has agreed!”
Now the question is whether Riyadh is capable of
such a boost at all.
A senior energy analyst told Shana that Saudi Arabia
has no record of oil production beyond 11 million barrels per day. Rather, the
country taps its oil inventories, which hold 240 mb of crude based on the
latest figures, to bring its claimed output to 12 mbd whenever necessary, as
this has been the case on several occasions in the past. The kingdom resorted
to such a strategy during the Iraqi occupation of Kuwait, or following the fall
of Iraqi monarch Saddam' Hussein.
As the expert added, according to the Joint
Organisations Data Initiative (JODI), Saudi Arabia's crude oil storage by the
end of 2015 was 325 million barrels, which reversed in 2016 and 2017, and part
of its crude supply of 10.460 million and 9.954 million barrels per day was met
by dipping into its oil inventories. The Kingdom's crude oil storage volume
dropped by 80 million barrels in 2016 and 2017 to reach 245 million barrels by the
end of 2017. This amount would be tantamount to production of 670,000 b/d of
oil for Saudi Arabia whose storage capacity would not allow for more than 8
months of 1 mb/m of increase for the country.
Since inventories function as the best buffers in
the oil market, this means that it would not be a sustainable strategy for Saudi
Arabia to tap its inventories, thus putting the oil market at risk, noted the
He said another way for Saudi Arabian to ramp up
its oil production was to resort to the spare production capacity it claims it
has it its disposal. "By this method, Saudi Arabia could gradually
increase its production to 11 million barrels per day, which means that its surplus
capacity will be reduced."
Non-Political Administration of Oil Market
"The attacks on the Ras Lanuf and Sidra oil
terminals led Libyan oil production to drop to 315,000 bpd." Such events which
were covered by Reuters in the past few days show that the oil market is in a
situation where it will not be able to eliminate Iran's oil. Insisting on this
issue by Trump and the reassurances of Saudi Arabia and Russia which do not
accurately reflect the facts, would harm both consumers and producers in the
Hossein Kazempour Ardebili, Iran's OPEC Governor,
spoke with Shana about the ramifications of the removal of Iran's oil from the
market under these circumstances.
"Donald Trump's call on other countries to
stop buying crude oil from Iran and putting European companies under pressure
with Nigeria and Libya being crisis-stricken, Venezuela's crude oil output
having plunged and Saudi Arabia's consumption increasing due to summer, would
be a kind of self-harm for the US as it would lead to dramatic price hikes in
the oil market. As a result, American consumers would have to pay the price of
Trump's unilateralism at gas stations," he said.
Mr. Ardebili stressed that the oil market should
be run in a non-political manner and that oil should not be used as a tool to
achieve political goals. "This fact has been repeatedly underscored by the
Iranian Minister of Petroleum because it would harm the market in the
Iran's OPEC Governor further stated that the US
is fully aware of the ramification of the removal of Iran's oil from the market
and would definitely be seeking concessions from Iran's customers to allow them
to buy oil from the country.
Boosting Arms Sales: US Plan for the Middle East
It seems that blasting OPEC for purportedly manipulating
the prices has become a daily routine for US President who, after a series of
interview with Foxnews, called on OPEC to "stop manipulating the prices,"
because US is supporting some member countries. He has also called on Saudi
Arabia to make up for removal of Iran's oil in the market.
forget the one negative to the Iran deal is that you lose a lot of oil, and
they got to make up for it. And who is their big enemy? Iran. OK. You think of
it. Iran is their big enemy, so they are going to have to do it,” Trump said.
He spoke with such a tone as if Saudi Arabia is an
American colony and King Salman is merely an American stooge.
Another energy expert spoke about the issue with
Shana, saying, "It is not clear to me what support US is talking about which
allows it to address Saudi Arabia like that. What threat could there have been
for Saudi Arabia that United States rubs it in on the Kingdom for saving them
from? This is humiliating for the Saudi nation, which does not see any foes in
Reacting to Trump's statement that "Iran is
Saudis' big enemy", the analysts said: "Have the region's people forgotten
about long-term friendships and the thousand-year-old neighborhood of Iranians,
which the United States now describes as a threat? By such derogative rhetoric,
the US seeks bolstering its arms sales in the Middle East. Under such
circumstances they would not hate it if oil prices increased so they would more
easily get their money for selling arms to regional countries."
"Such measures are not and will not be
lasting. The main consuming countries in the world will not accede to such
views, he added.
Russia Capacity to Boost Oil Output no more than
Russia, as one of the 10 non-OPEC countries that
signed the 2016 agreement on to reduce 600,000 barrels/day of their crude oil production,
in recent months, has been beating the drum of bolstering its oil supplies. One
would ask whether it had any capacity to do so or not?
An energy analyst says Russia has proven not to
have the capacity to increase its production more than 100 to 150,000 barrels
per day which would be insignificant when considering Libya's 850,000 b/d drop
in oil supplies. Russia displayed 95% compliance with the OPEC output cut plan
in May 2018 and has registered an average of 93% conformity to the deal since
As the analyst emphasized, what's important now
is that Iran's export of 2,800,000 barrels of oil has become subjects to Trump
pressure on Europe and Iran's oil customers.