Monday Jul 02, 2018
WASHINGTON/RIYADH: The leader of Saudi Arabia promised US President Donald Trump that he can raise oil production if needed and the country has 2 million barrels per day (BPD) of spare capacity, the White House said on Saturday, rowing back on an earlier Trump tweet that appeared to suggest the Saudis had agreed to boost output by that amount.
Trump told King Salman bin Abdulaziz Al Saud that the oil market could need more supply when the men spoke on Friday, the White House said. The Saudi leader said he was ready to raise output if needed, the White House said in a statement.
“King Salman affirmed that the Kingdom maintains a two million barrel per day spare capacity, which it will prudently use if and when necessary to ensure market balance,” read the statement.
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 Russia, had agreed on June 22 to boost production by a combined 700,000 to 1 million barrels a day, so any 2-million-BPD increase would be at least double market expectations.
The White House statement undercut a tweet by Trump earlier in the day when he wrote that Saudi Arabia had definitely agreed to produce more oil.
“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!” Trump tweeted.
In the tweet, Trump said the extra Saudi oil would help offset a decline in supply from Iran, after the US pulled out of the Iran nuclear deal in May and moved to reimpose oil sanctions.
Trump was not specific on whether the additional 2 million barrels was a per-day figure — but worldwide daily demand is nearing 100 million BPD.
Saudi state media reported that during the call, the Saudi king and Trump emphasised the need to preserve oil market stability and efforts of oil-producing countries to compensate for any potential shortage.
The statement reported by Saudi media did not mention any intention by Saudi Arabia to raise production by 2 million BPD. Saudi oil officials did not comment.
The source familiar with the kingdom’s plans told Reuters last week that Riyadh plans to boost output in July to 11 million BPD, the highest in its history, up from 10.8 million in June.
Saudi Arabia has a maximum sustainable capacity of 12 million BPD, but it has never tested that level of production.
“We will be in uncharted territory. While Saudi Arabia has the capacity in theory, it takes time and money to bring these barrels online, up to one year,” said Amrita Sen of consultancy Energy Aspects.
Benchmark Brent crude was trading around $79 a barrel on Friday, and a Reuters poll showed prices look to remain strong for the rest of this year due to supply disruptions in countries including Libya and Venezuela and as the extra oil from OPEC fails to meet rising demand.
Saudi Energy Minister Khalid al-Falih met with US Secretary of State Mike Pompeo in Washington on Thursday to discuss energy security.
The Trump administration is pushing countries to cut all imports of Iranian oil from November when the US re-imposes sanctions against Tehran after Trump withdrew from the 2015 nuclear deal agreed between Iran and six major powers, against the advice of allies in Europe and elsewhere.
US officials are pressing allies in Europe, Asia, and the Middle East to adhere to the sanctions once they are re-imposed, with the aim of pressuring Iran into negotiating a new agreement.
State Department officials said this week the United States is prepared to work with countries on a case-by-case basis to help them reduce imports of Iranian oil and suggested some exemptions were possible.
Iran’s Supreme Leader Ayatollah Ali Khamenei on Saturday accused Washington of trying to turn Iranians against their government.
“They bring to bear economic pressure to separate the nation from the system ... but six US presidents before him tried this and had to give up,” Khamenei was quoted as saying on Saturday by his website Khamenei.ir, referring to Trump.
Iran’s rial currency has lost up to 40 per cent of its value since last month, when Trump pulled out of the nuclear deal.
Iran’s OPEC governor, Hossein Kazempour Ardebili, accused the United States and Saudi Arabia of trying to push up oil prices and said both countries are acting against the foundation of OPEC.
“If this happens, (it) means Trump is asking Saudi Arabia to walk (away) from OPEC,” he told Reuters.
“The market will go up to $100 I am sure as Saudi Arabia said they will plan an increase for July. ... This was managed between the two to rob the pocket of rest of the world,” he said.