Why An OPEC Oil Supply Surge Won’t Happen
The end of the Iranian sanction waivers by the Trump Administration has put oil traders on edge.
While most analysts are optimistic about OPEC leader Saudi Arabia being able to fill the gap left by lower Iranian oil exports, reality could be totally different. Looking at the ongoing discussions between OPEC’s two key members, Saudi Arabia and the UAE, there are no real signs that the Kingdom of Oil will be willing to increase its overall oil production to keep prices at the pump low in oil importing nations.
The real crux at present is what the market will do when, on the 2nd of May, the Iran sanction waivers end. History has shown that oil importers are very well equipped to take mitigating measures to counter the effects of the Iran sanctions. Saudi Arabia, and others, will have to be very careful to stabilize the market without falling into a Trumpian trap, which could result in an oversupply situation in the short term.
At present, all signs point to higher oil prices. If no real additional oil is brought onto the market, shortages will become visible within months. Statements made by U.S. president Trump and U.S. Secretary of State Mike Pompeo that Saudi Arabia and the UAE will add supplies to counter the loss of Iranian volumes are currently only wishful thinking, and not based on any hard promises from Riyadh or Abu Dhabi.
OPEC’s leaders are in a powerful position to react to Trump’s calls for additional volumes and lower prices as they wish. Washington’s strategy may well have backfired, as U.S. shale will not be able to supply the markets with the necessary crude grades. At the same time, national oil companies are willing to take a backseat, as long as OPEC+ production cuts are in place.
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