Trump tweet forces Saudis to put brakes on oil price surge

Cornelia Mascio
Mag 27, 2018

"With record amounts of oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High".

Prices dipped lower after Saudi Arabia energy minister Khalid Al-Falih said the country was prepared to adjust its policy in June but did not confirm by how much output could increase.

Analysts say the downward drift of oil prices in recent days could be down to plans by Russian Federation to ease production restrictions ahead of OPEC/non-OPEC Joint Ministerial Monitoring Committee (JMMC) meeting scheduled for June 22.

Investment bank UBS says that a price spike to $100 per barrel is possible, which should be worrying because it could trigger an economic recession.

Prices have moved higher not only because of OPEC and its allies' pullback, but also from threatened USA sanctions on OPEC member Iran, which has been exporting as much 1 million b/d, along with the energy industry collapse for OPEC member Venezuela, which also has cut into global supply.

The cartel began discussing whether to ease production cuts following Trump's tweet, according to OPEC Secretary General Mohammad Barkindo.

Investors are fearful that the production cut agreement between OPEC and non-OPEC members might come to an end.

The Saudi-led Organization of the Petroleum Exporting Countries and other large oil producers, notably Russian Federation, have agreed to reduce output by 1.8 million barrels per day (bpd) until the end of the year.

Not helping sentiment was news on Friday of a rise in the number of active USA oil rigs, which suggests a possible uptick in production, also contributed in the decline in prices.

"I think the output reduction will not be as significant as many expect", RIA news agency quoted Novak as saying when asked if he agreed with an estimate that the sanctions could remove as much as 800,000 barrels a day from the market.

Impending new U.S. sanctions have not thus far undermined the flow of oil supplies to global markets, Kardor said on May 26. Meanwhile crude oil futures decreased 2.73% to $68.78 a barrel.

Novak is due to meet with OPEC ministers in Vienna on June 22 and 23.

"In an environment of low inventories and rising geopolitical outages, raising some supply is prudent", said Amrita Sen, oil analyst at Energy Aspects.

U.S. crude oil production has risen by more than a quarter in the past two years, to 10.73-million barrels per day.

There is a lag of at least a few days between the direction of oil prices and gasoline prices, with the acceleration in gas prices letting up in recent days.

While Russia and OPEC benefit from higher oil prices, up nearly 20 percent since the end of previous year, their voluntary output cuts have opened the door to other producers, such as the US shale sector, to ramp up production and gain market share.

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