SHANA– Donald Trump’s call on other countries to stop buying crude oil from Iran and putting European companies under pressure would be a kind of self-harm for the US leading to dramatic price hikes in the oil market, given Nigeria and Libya being crisis-stricken, Venezuela’s crude oil output having plunged and Saudi Arabia’s domestic consumption spike in summer, Iran’s OPEC Governor says.
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 analyst.
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 Necessary
“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 market.
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 long-run.”
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.
“Don’t 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 the region.”
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 200,000 b/d
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 January 2017.
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.