April 20, 2018, by Elena Mazneva, Grant Smith and Angelina Rascouet
U.S. President Donald Trump slammed OPEC for inflating oil prices after the cartel showed a willingness to further tighten crude markets.
“Looks like OPEC is at it again,” Trump said on Twitter, not long after energy ministers finished their meeting in Jeddah, Saudi Arabia. “Oil prices are artificially Very High! No good and will not be accepted!”
The president’s ire followed a stream of bullish signals from a meeting of oil producers in Saudi Arabia, chiefly from the kingdom’s Energy Minister Khalid Al-Falih. The crude glut that’s weighed on prices for three years has almost been wiped out by OPEC’s production cuts, but instead of celebrating victory the group is finding reasons to keep going and drive fuel inventories even lower.
The purpose of the shift in the target was clear: There’s capacity for prices to rise even further beyond their current three-year high, Al-Falih said.
“We have seen prices significantly higher in the past, twice as much as where we are today” and the global economy has the ability to absorb them, the Saudi minister said.
International crude prices have surged to almost $75 a barrel and U.S. gasoline is the highest in almost three years. Yet OPEC’s choke-hold on its own production is only getting tighter. Saudi Arabia is said to desire oil closer to $80.
Some of the closest U.S. allies within the Organization of Petroleum Exporting Countries rejected Trump’s accusation. Prices aren’t artificially high, said United Arab Emirates Oil Minister Suhail Al Mazrouei. Al-Falih echoed that view.
“We are doing our role to correct the market,” Al Mazrouei said. “There are many things affecting the market, not just supply and demand,” including geopolitics that are beyond OPEC’s control, he said.
Russia, Saudi Arabia’s most important ally in the production cuts, gave its backing to continuing the cuts until their end-2018 expiry. There’s no obligation to stop just because the pact’s initial goal — stockpiles in industrialized nations back in line with the five-year average — is at hand, said Energy Minister Alexander Novak.
“We have our targets, but there’s no strict formula under which we would decide: ‘Well, we’ve reached zero, so we are done’,” Novak told reporters at the opening session of the group’s meeting in Jeddah, Saudi Arabia on Friday.
While soaring U.S. shale production remains a nagging concern, the key players appear to be more fixated on the immediate benefits of high crude prices. Saudi Arabia needs to cover weighty domestic spending and attract investors to a partial sale of its state oil company, Aramco. Russia is relishing its new role as a major Middle East power broker, while also enjoying bigger financial gains than anyone from the accord.
“Russia is keeping all options open and Saudi Arabia is talking about a 2019 extension,” UBS Group AG analyst Giovanni Staunovo said by email. “Status quo for the time being is still the best choice,” although the outcome of the group’s next meeting in June will depend on inventory and production levels.
Novak wouldn’t rule out some easing of the production cuts this year, but said it would depend entirely on the situation in the market. For now, the group is cutting ever deeper, and Saudi Arabia’s Al-Falih chided nations that haven’t been implementing their fair share of the curbs at the opening session of the Jeddah talks. Iraq and Kazakhstan have pledged to improve their compliance, according to the closing statement from the meeting.
Overall, OPEC and its allies cut 49 percent deeper than the agreed 1.8 million barrels a day in March, according to the statement. That’s the biggest reduction ever and the seventh month the group has surpassed its target, Novak said.
Much of those additional reductions weren’t intentional, according to the International Energy Agency. An economic crisis and “ chronic mismanagement” dragged Venezuela’s output to a multi-decade low, while Angola lost production from aging fields. Others were temporary, such as field maintenance in Algeria. The involuntary cuts may keep getting deeper if U.S. President Donald Trump reimposes sanctions on Iran next month.
Yet, ministers showed little concern for the signs of a significantly tighter market. Saudi Arabia in particular gave a strong indication that higher prices wouldn’t be a bad thing. Every year the world needs to develop new daily production capacity of about 4 million to 5 million barrels and invest hundreds of billions of dollars, but that’s not happening right now, he said.