Crude Prices Mixed as Trump Calls for More Action From OPEC

Iran’s President Hassan Rouhani is seen at the airport in Tehran

Iran’s President Hassan Rouhani is seen at the airport in Tehran

The Trump administration has on June 26 asked worldwide community to cut all imports of Iranian oil before November 4, when the U.S. re-imposes sanctions against that country.

Monica Malik, chief economist, Abu Dhabi Commercial Bank, welcomed the UAE's decision to hike output later this year as it will bring stability in the oil market and also improve government revenues from hydrocarbon sector. Morgan Stanley expects worldwide prices to hit $85 a barrel in the second half of 2018, which is $7.50 higher than their previous projection.

Abu Dhabi National Oil Company (Adnoc) on Tuesday said it has the capacity to increase production by several hundred thousand barrels per day, if required to meet any potential supply shortage.

Trump's aim may be to exert maximum pressure on Iran while at the same time not upsetting potential USA midterm voters with higher gas prices, said Antoine Halff, a Columbia University researcher and former chief oil analyst for the International Energy Agency.

There are two key takeaways from the most recent exchange between the world's largest consumer and the world's swing supplier. Iran, however, said it would be tough to erase its oil completely from the market by November, when US sanctions snap back into place. The four European countries that buy oil from Iran are Italy with 180,000 barrels per day, France with 110,000 barrels per day, Greece with 100,000 barrels per day, and Spain with 70,000 barrels per day. Will America continue to maintain wide trade relations with China? Despite President Trump nudging Saudi Arabia to boost production, it did little to tamp down the price of oil the past few days. India, South Korea and Turkey - all allies or friends of the United States - are major importers of oil from Iran and are unlikely to be able to switch suppliers entirely by November.

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That means USA sanctions will soon be re-imposed on Iranian exports, which could keep as much as half of the country's oil in the ground. But broadcasting its requests on Twitter with a number that stretches credibility opens a new chapter in U.S. -Saudi relations, Halff said. USA oil closed Friday at $74.15 a barrel.

Trump's interventions with tweets "unsettle" the market and appear to have pushed prices up, Standard Chartered Plc energy analyst Emily Ashford and head of commodities research Paul Horsnell wrote in a note on Tuesday (July 3).

Crude oil prices rose on Tuesday with the USA benchmark hitting a four-year high on expected drains in domestic inventories and outages in Libya. The state-managed model of Saudi Arabia and its compatriots no longer has the same lock on the global oil supply that it used to.

U.S. production has soared 30 per cent in the past two years, to 10.9 million bpd, meaning the world's three biggest oil producers now churn out nearly 11 million bpd each, meeting a third of global oil demand.

"Tariffs will close the USA export arbitrage opportunity to China", Goldman Sachs said, although it added that finding alternative supplies would be "fairly easy" for Chinese refiners. The Kingdom filled the gap created by the decline in United States oil production; the 1978-80 gaps created by the Iranian revolution; and the 1990-1 gaps opened up by the Iraq-Kuwait war.

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Trump's comments came Saturday as global financial markets were closed.

OPEC pledged to relax compliance with an agreement that helped balance an oversupplied market, but that might not be enough to address a looming deficit of around 2 million barrels per day. The injection of two million additional barrels by Saudis is roughly equivalent to Iran's exports.

Other analysts were more doubtful about immediate effects.

The agreement from Saudi Arabia is surprising as in recent months they have agreed with Russian Federation and other OPEC+ members to keep production relatively low.

The statement said the kingdom will coordinate with other producers.

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