On September 20th, US President Donald Trump called on the Organization of the Petroleum Exporting Countries (OPEC) to bring down the cost of fuel, claiming that the organization has a monopoly on oil and unilaterally decides on the price of fuel.
“We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!” Trump posted on Twitter.
OPEC’s leader Saudi Arabia and its biggest oil-producer ally outside the group, Russia said that there would be no immediate, additional increase in crude oil output. They effectively rebuffed Donald Trump’s calls for action.
Saudi Arabian Energy Minister Khalid al-Falih said on Sunday he does not influence oil prices, ahead of a meeting of OPEC ministers and allies such as Russia to discuss the situation in the oil markets.
Trump was prompted to call for the reduction in price due to Benchmark Brent oil reaching $80 a barrel this month.
The price rally mainly stemmed from a decline in oil exports from OPEC member Iran due to fresh US sanctions. So, it is reasonable to assume that US withdrawal from the Iran Nuclear Deal and the sanctions they reimposed on Iran, are actually the reason behind the increase in oil market, which Trump claims OPEC can fix.
Falih said Saudi Arabia had spare capacity to increase oil output but no such move was needed at the moment. “My information is that the markets are adequately supplied. I don’t know of any refiner in the world who is looking for oil and is not able to get it,” Falih said.
Russian Energy Minister Alexander Novak said no immediate output increase was necessary, although he believed a trade war between China and the United States as well as US sanctions on Iran were creating new challenges for oil markets.
After the September 23rd talks between OPEC ministers, Oman’s Oil Minister Mohammed bin Hamad Al-Rumhy and Kuwaiti counterpart Bakhit al-Rashidi told reporters that producers had agreed they needed to focus on reaching 100% compliance with production cuts agreed in June. It effectively means that this attempts to compensate for falling Iranian production, as reported by Reuters. Al-Rumhy said the exact mechanism to offset the loss has not been discussed yet.
As reported by Reuters, Iran, which is OPEC’s third-largest producer, has accused Trump of orchestrating the oil price rally by imposing sanctions on Tehran and accused its regional arch-rival Saudi Arabia of bowing to U.S. pressure. On September 23rd, Iranian Oil Minister Bijan Zanganeh said Trump’s tweet “was the biggest insult to Washington’s allies in the Middle East”.
Reuters further reported that following a downturn in oil prices in 2016, OPEC, Russia and other allies decided to reduce supply by 1.8 barrels per day. In June 2018, however, they agreed to boost output by returning to 100% compliance, mostly due to involuntary reductions from Venezuela and other producers. That equates to an increase of about 1 million bpd, but the latest figures show they are some way from achieving that target.
Iran claimed its production for August had been steady at 3.8 million barrels per day, however OPEC own estimates, according to secondary sources such as researchers and ship-trackers put Iranian output at 3.58 million barrels per day.
Falih said returning to 100% compliance was the main objective and should be achieved in the next two to three months. He did not specify how that could be achieved, since as reported by Reuters, Saudi Arabia is the only producer with spare capacity.
“We have the consensus that we need to offset reductions and achieve 100 percent compliance, which means we can produce significantly more than we are producing today if there is demand,” Falih said.
“The biggest issue is not with the producing countries, it’s with the refiners, it’s with the demand. We in Saudi Arabia have not seen demand for any additional barrel that we did not produce.”
Trump is attempting to force OPEC to solve issues, which have partially been caused by the US withdrawal from the Iran Nuclear Deal. A sudden raise in gas prices in the US could affect him negatively in the upcoming November 6th elections.
Apart from Iran, another reason for the increase in oil prices comes from Venezuela. As reported by Bloomberg in an analysis on September 20th, In Venezuale, “falling oil output is both a casualty and contributor in the country’s economic collapse. Trump has reportedly discussed potential military intervention there, which, given the recent history of such ventures, one imagines wouldn’t necessarily stabilize things. And forgive me if you know this already, but Venezuela isn’t in the Middle East.”