Saudi Arabia’s energy minister said the world’s biggest oil exporter sees no need to take immediate action in the crude market, signaling a cautious response to the U.S. decision to tighten sanctions on Iran.
The kingdom won’t significantly raise output in May and will stay within its OPEC production limit until the group’s current supply deal expires in June, Khalid Al-Falih said Wednesday in Riyadh. That would allow for a modest increase in production because Saudi Arabia currently pumps about 500,000 barrels a day below its quota.
“We will see what the customers want,” Al-Falih told reporters. “I think our intent is to remain within our voluntary production limit, but at the same time to be responsive to our customers, especially those who have been under waivers, and those waivers have been withdrawn.”
Riyadh is treading a fine line between keeping its key U.S. ally happy while preserving unity in the producer coalition known as OPEC+. The U.S. on Monday said it will stop issuing waivers from sanctions for countries that buy oil from Iran. To prevent a possible spike in crude prices, Washington expects Saudi Arabia and other members of the Organization of Petroleum Exporting Countries to help make up for anticipated losses in Iranian exports.
At the same time, Saudi Arabia is leading OPEC and allied producers in cutting supplies to try to buttress crude and avert a glut. If the kingdom boosts production sharply to offset missing Iranian barrels, it will have a hard time persuading others to limit output. OPEC, including Iran, plans to meet in June to decide whether to extend production curbs into the second half of the year.
“We allocated May, and the program is set — the ships are scheduled — so I think there will be very little variation in May production from the last couple of months,” Al-Falih said.
Saudi oil shipments for June will be allocated early next month, he said. “We think there will be an up-tick in real demand, but certainly we’re not going to be preemptive and increase production preemptively because the market is well-supplied and inventories continue to rise.”
Any nation continuing to buy Iranian oil will face U.S. sanctions, Secretary of State Michael Pompeo said Monday after announcing that temporary waivers granted to some countries late last year won’t be renewed. The current set of waivers — issued to China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey — are to expire on May 2.
The U.S. announcement marked a reversal from last November, when Washington blindsided Saudi Arabia by granting the waivers as it sought to damp fuel prices ahead of mid-term Congressional elections. This week’s decision is aimed at reducing Iran’s oil exports to zero, in an effort to pressure the country over its regional policies and nuclear program.
Iranian President Hassan Rouhani said it will be “impossible” for the U.S. to completely stop his nation from selling oil. Iran would consider negotiations to resolve the issue, though away from pressure and in a context of “mutual respect,” he said at a cabinet meeting, according to the state-run Mehr news agency.
“First we need to make the U.S. regretful, and have no choice but to resist,” Rouhani said.
Pompeo has said he’s confident the market will remain stable as Saudi Arabia and the United Arab Emirates — Iran’s top regional foes — will help ensure an appropriate supply of oil.
Turkey, however, is loath to buy more crude from either Arab nation. “Iranian oil isn’t cheap, but there is a big difference” with the prices of Saudi and U.A.E crude, Turkish Foreign Minister Mevlut Cavusoglu said at a reception in Ankara, according to state-run TRT television. “The U.S. is taking a decision and wants all countries to comply with it. Why should we pay the price?”
Saudi Arabia and the U.A.E. can increase their combined production by about 1.5 million barrels a day within a short period, according to people with knowledge of the matter. The additional oil would more than compensate for losses from Iran, which shipped about 1.1 million barrels a day in the first half of April, data compiled by Bloomberg show.
“We will not leave our customers scrambling,” Al-Falih said. “We make sure globally, at a global level, that oil markets are in balance.”