SEP 29, 2018 (BE2C2 Report): Saudi Arabia is poised to steadily increase production to compensate for the Iranian oil that will be subject to U.S. sanctions starting Nov. 5.
Saudi Arabia hasn’t said anything publicly, and seemed to tow the OPEC line following Sunday’s meeting with other major oil producers. But Commerzbank said Friday that Saudi Arabia could pump another 500,000 barrels of crude oil per day.
“Saudi Arabia apparently plans to quietly increase the oil supply in the short term to compensate for the shortfall in Iranian oil,” analysts from Commerzbank said Friday.
Two sources familiar with OPEC policy told Reuters Saudi Arabia and other OPEC and non-OPEC producers had discussed a possible production increase of about 500,000 barrels per day (bpd).
President Donald Trump has been at odds with the Organization of the Petroleum Exporting Countries (OPEC) since he tweeted last week demanding increases in production to lower prices.
Trump’s sanctions are designed to prevent Iran from exporting oil. The sanctions, which will take about 1.7 million barrels per day out of the world market, are meant to punish the Iranian regime and pressure the leaders into a nuclear agreement.
An increase in production by Saudi Arabia could escalate tensions between Iran and the kingdom.
Saudi Arabia has indicated it would increase production in September and October. However, the kingdom is also wary about creating a new supply glut, as the market will see a seasonal dip in demand in the winter.
Oil prices are already reacting to the threat of sanctions with a month to go, with some predicting they could go as high as $100 before the end of 2018.
A report by Bloomberg over the week noted that with the US sanctions on Iran taking full effect in early November, the US$100-oil scenario could become more realistic.
Crude oil prices soared again Friday with Brent trading at $83 a barrel in mid-day trading — a four-year high, and more bullish indicators suggest the rally has only just begun.
According to OilPrice, the tension between dwindling Iranian supply and the extent to which Saudi Arabia will increase production is sure to dominate the market narrative over the next few weeks.