Why Oil Prices Are Surging

01 July, 2018, 12:57 | Author: Lora Ball
  • Donald Trump

The Saudi Press Agency confirmed that President Trump and King Salman had spoken by phone, giving few details.

According to the report, the two leaders also spoke about efforts of oil producing countries to compensate for any potential shortage of supply. It did not elaborate.

U.S. President Donald Trump said in a tweet on Saturday that Saudi Arabia's King Salman had agreed to his request to increase oil production "maybe up to 2,000,000 barrels" to offset a decline in supplies from Iran and Venezuela.

"Just spoke to King Salman of Saudi Arabia and explained to him that, because of the turmoil & dysfunction 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", Trump announced in an early morning tweet.

The talks centered on whether to amend an 18-month-old supply-cut deal between OPEC members and allied countries, including Russian Federation, that has cleared a global oil glut and lifted crude prices. Trump made the original request because, he said, oil prices are too high.

Opec agreed with Russian Federation and other oil producers to raise output by a million barrels per day earlier this month.

The overt pressure brought by Trump on Saudi Arabia is unusual, but the kingdom has been actively urging the president to withdraw from the worldwide agreement that placed restrictions on Iran's nuclear program.

The statement reported by Saudi media did not mention any intention by Saudi Arabia to raise production by 2 million bpd. Saudi Arabia would like oil prices to remain elevated, while appeasing President Trump.

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"This will push the system close to the limit", and spare production capacity could fall below 2 million barrels a day - a level previously associated with $100 per barrel prices, the group said.

Riyadh plans to boost output to 11 million bpd, the highest in its history, in July up from 10.8 mln bpd in June, a source familiar with Saudi output plans told Reuters this week.

Saudi Energy Minister Khalid al-Falih met with U.S. Secretary of State Mike Pompeo in Washington on Thursday to discuss energy security.

The telephone exchange is another sign of how US-Saudi ties have improved under Mr Trump compared with the Obama administration, which alienated the kingdom by seeking a nuclear deal with Iran.

"We will be in uncharted territory". When Trump withdrew and reimposed sanctions, that meant Iranian exports would come under pressure. "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. "Triple-digit oil prices are not off the table", JBC said. Venezuela is in the midst of an economic crisis, which has caused oil production to plummet.

The Opec oil producers' group agreed to increase output, as did Russian Federation, but this failed to reassure markets. The State Department is now insisting that other countries stop importing Iranian oil - or face sanctions from Washington.

Iran's rial currency has lost up to 40 per cent of its value since last month, when Trump pulled out of the 2015 nuclear deal.

Non-OPEC member Russian Federation on June 23 also backed the effort, capping a week of tense diplomacy for the grouping that averted a damaging rift between arch foes Iran and Saudi Arabia.

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