Trump claims Saudis will boost oil production

Gladys Abbott
July 2, 2018

Earlier in the day, Trump said that Saudi Arabia's King Salman has agreed to his request of raising the oil production "maybe up to 2,000,000 barrels" in order to bring prices down. Later on Saturday, the Saudi SPA news agency also reported about the conversation between Trump and Salman but has not mentioned the agreement announced by Trump. His tweet Saturday came as many Americans were hitting the roads to begin an extended Fourth of July holiday.

Oil prices rose sharply in the spring as production collapsed in crisis-ridden Venezuela and traders anticipated Trump's withdrawal of the United States from the Iran nuclear deal.

"The market will go up to $100 I am sure as Saudi Arabia said they will plan an increase for July. We maintain our Brent crude forecast of $70.80 per barrel for 2018 and $66 for 2019, following the OPEC meeting, though highlight some moderate upside risks for 2018", she said.

Trump appears to be trying to "talk the market down", said Lawrence Goldstein, who directs the Energy Policy Research Foundation.

Saudi Arabia's pledge followed a meeting earlier this month in Vienna of OPEC members, Russian Federation and other oil producing countries.

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 a day.

There was no confirmation that Saudi Arabia would increase oil production, as President Trump said. Traders worry that a major curtailment of Tehran's output could risk creating a supply crunch that might drive prices skyward. Any 2 million bpd-increase would thus be at least double market expectations.

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Since OPEC's decision on June 22 and 23 to ease the 1.8 million barrels a day cap (by around a million barrels shares mostly by Saudi Arabia and Russia), prices have jumped more than 10% to Friday's close of $US74.15 for US West Texas Intermediate crude.

Interestingly the EIA production data has shown no increase for USA crude output for three weeks now at 10.9 million barrels a day.

"We'll need more oil down the road and there'll be nowhere to get it", said Flynn, of the Price Futures Group. "Can they really push above that quickly?"

A little over an hour later, the Saudi Press Agency reported on the call but offered few details.

Other analysts were more doubtful about immediate effects.

While production in the United States has been rising rapidly, largely through the extraction of oil from shale rock, analysts forecast that the growth is likely to slow in the coming months because of a lack of sufficient pipelines to transport the oil to markets. "The president is asking the central bank of oil to make a massive injection of liquidity into the market". But traders are concerned that all of these problems may add up to shortages down the road.

On Saturday, Trump said that he spoke to the Saudi king about the need to increase Saudi Arabia's oil production "maybe up to 2,000,000 barrels" due to unstable situation in Iran and Venezuela, stressing that the Saudi leader agreed with the proposal.

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