Pundits Worry Saudi Oil Tap Being Opened too Quickly Creating Prices to Dive

Published July 22nd, 2018 - 05:00 GMT
Donald Trump in Saudi Arabia (Twitter)
Donald Trump in Saudi Arabia (Twitter)

Shortly after indications grew that Saudi Arabia had increased its production of crude oil in response to a call to the same effect by U.S. President Donald Trump, concerns are reportedly surfacing in the kingdom that the taps may have been turned open too quickly.

The Independent in a report quoted unnamed sources as saying that there was still little appetite for extra Saudi barrels in the market and that this had already pressuring the prices.

“They’re pushing out a heck of a lot of crude right now, and they’re worried about the downward pressure on prices,” the daily quoted Mike Wittner, head of oil market research at Societe Generale SA in New York, as saying .

“The Saudis are trying to thread a needle right now, and the width of that needle is $70 to $80.”

It also highlighted speculations among experts that prices could plunge further even when sanctions against Iran were implemented – specifically given that the impact of sanctions remained “highly uncertain”.

In May, U.S. President Donald Trump announced that he would pull America out of a 2015 nuclear agreement with Iran and re-impose the sanctions that the deal had envisaged to be lifted.



He has already emphasized that the sanctions which would be imposed on Iran would be “at the highest level”.

The sanctions would start with a universal ban on Iran over buying or acquiring US dollars which will come into force in August. This is expected to close banking channels for trade with Iran.

The second phase of sanctions would include restrictions over purchases of crude oil from the country and investing in its oil sector projects which will become effective by the start of November.

It is widely believed that Trump’s administration has been pressuring the Saudis to increase their oil production thus prevent a shock to the market once Iran’s oil supplies are cut off.

However, experts have already emphasized that any increase in Saudi output would be temporary and that pumping more oil may not be sustainable over a long period of time.

On a related front, Hossein Kazempour Ardebili, Iran’s representative to the Organization of the Petroleum Exporting Countries (OPEC), was quoted by media as saying that the Saudis had duped President Trump over his anticipation that they – and certain other producers – could fill the market gap created as a result of cutting off Iranian supplies.

The Independent further in its report said a more significant supply gap would not emerge until sanctions against Iran enter full force in November.

As a result, the kingdom seems to be having difficulty right now placing all the barrels it wanted to, it quoted people who had spoken with the Saudis as saying.

The problem is being compounded by weak appetite for crude in Asia, where concerns are building about the strength of demand, the daily quoted experts at consultant Energy Aspects Ltd as saying.

With so many factors shifting the balance between global supply and demand, the appetite for additional Saudi crude may change, especially as the extent of Iran’s losses becomes clearer.

Market sentiment could flip again to focus on worries over whether the kingdom has enough idle production capacity to prevent a shortage emerging on the global market, added The Independent.

“We have hardly started to see a reduction in flows from Iran,” it quoted Societe Generale’s Wittner, as adding further in his remarks.

“Though there’s a lot of crude coming out from Saudi Arabia now, spare capacity is really going to be the big issue going forward. And spare capacity is getting very tight very quickly.”


This article has been adapted from its original source.

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