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Published: Mon, July 02, 2018
Economy | By Melissa Porter

Trump asks Saudis to up oil output to lower prices

Trump asks Saudis to up oil output to lower prices

According to Bloomberg, Saudi state media have confirmed a phone call between Trump and King Salman took place, but have not confirmed any agreement on production increases.

Trump in a tweet said he had spoken to King Salman of Saudi Arabia who had agreed to increase production.

Al Jazeera's Rosiland Jordan, reporting from Washington, DC, said "it is not unusual" for the White House to put pressure on OPEC members to increase oil output "mainly because the United States president is first and foremost concerned about the cost of gasoline and consumer fuels, especially in an election year" - the USA will hold midterm congressional polls in November.

Last week, members of the OPEC cartel led by Saudi Arabia, and non-cartel members, agreed to pump 1 million barrels more crude oil per day, a move that should help contain the recent rise in global energy prices.

However, a source familiar with Saudi Arabia's production plans told Reuters earlier in the week of the kingdom's intention to increase output by 200,000 bpd this month.

Saudi Arabia - along with other Organization of Petroleum Exporting Countries (OPEC) and non-OPEC nations, including Russian Federation - had agreed on June 22 to boost production by a combined 700,000 to 1 million barrels a day, a move that should help contain the recent rise in global energy prices. "He has agreed!" Trump tweeted.

President Donald Trump has asked Saudi Arabia's king to increase oil production to make up for a shortfall from Iran and Venezuela. However, the price action on Friday suggests that buyers are still coming in and aggressively willing to chase this market higher.

An agreement by an OPEC member nation to increase oil output at the request of a USA president would be a serious blow to that alliance of 15 oil-producing countries, which sets production quotas collectively, and has already shown fragility in recent days.

However, Saudi Aramco CEO Amin Nasser told journalists in India on Monday that the state oil company has spare capacity of 2 million barrels of oil per day.

The talks had centered on whether to amend an 18-month-old supply-cut deal between OPEC members and allied countries, including Russian Federation, that has cleared a global oil glut and lifted crude prices.

The development comes days after Saudi Arabia, the world's biggest oil exporter, agreed to go all in with production. It would also likely aggravate other OPEC members, such as Iran and Venezuela, which initially sought to prevent any increase as OPEC, along with allies led by Russian Federation, headed into their Vienna meetings earlier this month.

"Once you get above that level, we are into uncharted territory", said David Fyfe, chief economist at the Gunvor Group, a major trading house. "While Saudi Arabia has the capacity in theory, it takes time and money to bring these barrels online, up to one year", she said.

"This is a situation where United States shale oil production itself has dropped in the past few months and that drop in the inventory has pushed oil prices up", Jordan said. That was after Saudi Energy Minister Khalid al-Falih said the kingdom would honor the OPEC decision to stick to a 1-million-barrel increase.

Trump in May withdrew the United States from a 2015 agreement that curbed Tehran's nuclear capabilities and ordered the reimposition of US sanctions against Tehran.

Besides the looming USA sanctions against Iran, which is fueling the rally in Brent futures, and the outage in Canada, which is supporting WTI crude, both markets are also benefitting from supply issues in Venezuela and Libya.

"Because of (sanctions on) Iranian crude, we are looking at USA heavy crude" as a substitute, the source said, in particular grades such as Southern Green Canyon and Mars, which are similar to crude from Iran.

The value of Iran's currency, the rial, has tumbled since Washington backed out of the Iran nuclear deal in May.

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