Saudi Arabia ramped up oil production last month by the most this year, largely filling the gap created by tougher U.S. sanctions on its political rival, Iran.
Iranian output plunged in May to the lowest since 1990 as the Trump administration threatened penalties for anyone trading with the Islamic Republic, according to a Bloomberg survey of officials, analysts and ship-tracking data.
Nonetheless, the production boost by Riyadh, along with increases in fellow OPEC members Libya and Iraq, meant that overall output from the group remained unchanged in May from the previous month. OPEC pumps about 40% of the world’s oil supplies.
Iran’s production plunged by 230,000 barrels a day to 2.32 million a day, according to the Bloomberg survey. Saudi Arabia increased by 170,000 barrels a day to 9.96 million a day. Total supply from OPEC’s 14 members was unchanged at 30.26 million barrels a day.
President Donald Trump is tightening the squeeze on Iran’s oil exports amid a dispute that revolves around the country’s nuclear program, and has turned to America’s allies in Riyadh to keep global crude markets comfortably supplied. The survey indicates that Saudi Arabia, a long-standing antagonist of Iran, has been willing to oblige.
That sets the stage for a contentious meeting when the Organization of Petroleum Exporting Countries and its partners gather in the coming weeks to consider production levels for the second half of the year. Iran has warned that the 59-year-old cartel is at risk of collapse because of aggressive moves by some members.
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Despite the boost, the Saudis are still significantly below the limit of 10.3 million barrels a day agreed at the start of the year with a global coalition of producers, which spans fellow OPEC members as well as nations outside the group including Russia and Kazakhstan.
Saudi Arabian Energy Minister Khalid Al-Falih has recommended that the alliance should keep the supply curbs in place for the rest of the year, as headwinds to global economic growth may reduce oil demand.
Oil prices slumped more than 11% in London last month as the trade dispute between the U.S. and China threatened to crimp growth in the world’s two biggest economies. Brent, the international benchmark, was trading around $62 a barrel on Monday.
While the Saudi production increase was still well inside the limits agreed with fellow producers, the same can’t be said of a boost by Iraq.
Baghdad raised output by 50,000 barrels a day last month to 4.63 million a day, meaning that it has now abandoned any of the restraint pledged under the OPEC agreement. As the Saudis have urged fellow OPEC members to abide by their individual targets, that could provide another source of friction when the producers get together.