Thus far, 2018 has been a year of marked recovery for oil prices. Brent Crude, for example, has spent the entire year above US$60 with several months above US$70, and in recent weeks it has risen even higher. At the time of writing, Brent had reached US$86/bbl – one of the highest levels seen in roughly four years.
This period of sustained, comparatively high prices now seems to be pushing up output from major producers around the world.
Saudi Arabia’s Energy Minister Khalid al Falih, has announced that the Kingdom’s oil production is on track to reach 10.7 million bpd once again – the first time since 2016. Some of the increased production growth comes as a result of the Kingdom’s attempts to eat into regional rival Iran’s market share in the build-up to returning US sanctions. However, an equally significant reason for the Kingdom’s rising oil output appears to be pressure from the US government to actually cool rising oil prices. OPEC and Saudi Arabia have both come under fire from President Trump in recent weeks and have been accused of working to raise prices ever higher. The President took to Twitter to voice his displeasure, “The OPEC monopoly must get prices down now!”1
In response to this criticism, Saudi Arabia is reported to have struck a private deal with Russia to raise output and apply some downwards pressure on prices.2 According to sources interviewed by Reuters, “The Russians and the Saudis agreed to add barrels to the market quietly with a view not to look like they are acting on Trump’s order to pump more,” and “The Saudi minister told (US Energy Secretary Rick) Perry that Saudi Arabia will raise output if its customers asked for more oil.”3
Meanwhile, Iran has vowed to continue producing crude at current levels, citing doubts that Saudi Arabia and Russia actually have the spare capacity available to make up the shortfall caused by imminent US sanctions on 1.2 million bpd of exports. Minister of Petroleum Bijan Zangeneh, quoted by Iran’s PressTV, was blunt as he reiterated the country’s determination to defend its market share, “The United States is doing all it can to prevent us from producing and supplying oil to the market, but Iran is producing its crude oil with force.”4
Even Libya, which has struggled to boost oil production in the wake of ongoing disruption, is reporting that it has increased output levels to 1.25 million bpd and has plans to push as high as 2 million bpd by 2022.5
And, of course, US production continues unabated; powered by the shale sector, the US has maintained a record high of 11.1 million bpd. Exactly how much of an impact ongoing production growth is going to have on prices is unknown, but it looks like politics is going to play just as great a role as economics.
References
- Twitter - https://twitter.com/realDonaldTrump/status/1042733544466989057
- ‘Exclusive: Saudi Arabia, Russia agreed in September to lift oil output, told U.S.’ – https://www.reuters.com/article/us-russia-saudi-oil-exclusive/exclusive-saudi-arabia-russia-agreed-in-sept-to-lift-oil-output-told-us-idUSKCN1MD0Y8
- Ibid.
- ‘Iran vows full-throttle oil production despite US’ – https://www.presstv.com/Detail/2018/10/03/575930/Iran-oil-production-US-sanctions-OPEC-prices
- ‘Libya has brought oil production to 1.25 mln barrels per day’ – http://tass.com/economy/1024263
