Saudi Arabia struggling to sell oil after raising output to please Trump, say financial experts
Saudi Arabia has rushed to boost oil production under pressure from US President Donald Trump â" only to discover that global markets might not need it yet, according to some financial experts.
The kingdomâs crude oil output surged the most in three years last month, as the US president demanded his allyâs help in cooling petrol prices and filling in the supply gap that will be created by his sanctions on Iran.
However, the Saudis are struggling to sell as much extra oil as theyâd ho ped and are privately fretting that they may have opened the taps too quickly, according to people briefed by Riyadh in the last few days.
Martijn Rats, global oil strategist at Morgan Stanley, said: âSaudi Arabia and several other members of the Organisation of Petroleum Exporting Countries (Opec) have increased exports sharply ahead of sanctions on Iran, and the timing mismatch between these effects is pressuring oil prices.â
A rare public statement from the Saudi Energy Ministry earlier this week could be taken as an illustration of their unease.
It rejected as âwithout basisâ any concerns that the kingdom was moving to oversupply world markets. Exports would be stable this month and fall in August, it said.
At the last Opec meeting in late June, the Saudis and their allies â" which include several neighbours from the Gulf Cooperation Council and also non-Opec producer Russia â" promised to boost output by about one million barrels a day to offset disruptions in Venezuela and Libya, plus the looming losses in Iran.
They were reactin g to pressure from President Trump, who was bashing the cartel on Twitter after the London crude oil price hit a three-year high of more than $80 (Â£61) a barrel in May.
Prices have since retreated to about $73 as Libya restored some halted output and the escalating US-China trade war stoked fears about the strength of demand.
Mike Wittner, head of oil market research at Societe Generale SA in New York, said: âTheyâre pushing out a heck of a lot of crude right now, and theyâre worried about the downward pressure on prices. The Saudis are trying to thread a needle right now, and the width of that needle is $70 to $80.â
Oil prices rose in response to the ministryâs statement and Brent crude, the internat ional benchmark, was 0.5 per cent higher at $72.92 a barrel in London as of 8.13am on Friday.
Saudi Arabia initially planned to reach record output of 10.8 million barrels a day this month, people briefed on production policy said late last month.
That level was always dependent on the strength of domestic and international demand, so could end up ranging from 10.6 million to 11 million, they said.
The kingdom told fellow producers that output in July will be in line with Juneâs level of just below 10.5 million barrels a day, people familiar with the matter said.
The impact of US sanctions on Iranâs oil shipments, which remains highly uncertain, will play a big part in determining the final outcome.
Since quitting the international nuclear agreement with Iran, the Trump administration has sent conflicting signals, indicating last month that it intended to choke off Iranian crude exports entirely.
More recently, however, officials such as Secretary of State Mike Pompeo and Treasury Secretary Steve Mnuchin have suggested a more flexible approach could be taken.
Iranian exports are already starting to fall, with shipments to Europe slumping by about 50 per cent in June, according to estimates from the International Energy Agency.
A more significant supply gap wonât emerge until sanctions enter full force in November, according to the people who spoke with the Saudis, who asked not to be identified as the talks were private.
As a result, the kingdom seems to be having difficulty right now placing all the barrels it wanted to.
The problem is being compounded by weak appetite for crude in Asia, where concerns are building about the strength of demand, consultant Energy Aspects Ltd said.
Amrita Sen, Energy Aspectsâ chief oil analyst said: âThis is a market where the increase in GCC and Russian supplies has come at a time when the refinery bid is lacking.â
Saudi crude exports fell by about 500,000 barrels a day to 6.7 million in the first half of July compared with the same period in June, tanker tracking by Bloomberg shows.
According to the statement on Thursday from the Energy Ministry, which cited Saudi Arabiaâs liaison to Opec Adeeb Al-Aama, exports for this month as a whole will be in line with Juneâs levels, and will decline by 100,000 barrels a day in August.
With so many factors shifting the balance b etween global supply and demand, the appetite for additional Saudi crude may change, especially as the extent of Iranâs 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.
Societe Generaleâs Mr Wittner, said: âWe have hardly started to see a reduction in flows from Iran. Though thereâs 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.â
The Washington Post with contributions from Bloombergâs Julian Lee and Wael MahdiSource: Google News Saudi Arabia | Netizen 24 Saudi Arabia