The magic number seems to be 1 million barrels. At least, that is what has been requested by the US to Saudi Arabia and some other OPEC producers in an unofficial appeal. After President Donald Trump publicly complained on Twitter that ‘OPEC is at it again!!!' when US crude prices surged to their highest levels in three years – induced in no small part by the re-imposition of sanctions on Iran – the request strikes a more conciliatory note as the oil titans of the world seek to bring some order to the market.
It is not known how the request was made, but it is known that it was made individually to a select group of oil producers – likely Saudi Arabia and its closest OPEC allies Kuwait, the UAE and Algeria, and most definitely not Iran. News of the request raised eyebrows. The US tends to shy away from involvement or engagement with OPEC, and that this happened an unprecedented situation. The USA is less worried about surging shale production in response to higher prices, but something more short-term – retail gasoline prices have jumped to their highest levels in more than three years, and with the summer driving season coming, the US fears high pump prices will trigger dissatisfaction, particularly with mid-term elections coming in November. Requesting the American shale industry to restrict output goes against US policy, so it has to go to OPEC, cap in hand, to ask for help.
Can OPEC help? Will OPEC help? The answer to both seems to be yes. Between Saudi Arabia, Kuwait and the UAE alone, there is almost 2 mmb/d of spare capacity that could theoretically be activated quickly. Those three – along with Algeria and non-OPEC member Oman – reportedly met up prior to the US request to their position in raising output. Russia too has significant spare capacity – some 500,000 b/d – that Rosneft is said to be gearing up to utilise. It is not known whether the US request included one to Russia, but OPEC and Russia were always going to head into the June 22 meeting in Vienna with the target of raising output regardless of America. The past three weeks has been characterised by a united Saudi-Russia front aimed to marshalling support for an output increase to convince other members of the OPEC-NOPEC alliance to fall in line.
From its ‘the higher the better' attitude seen earlier this year, OPEC has now moved to a desire to contain prices within the US$70-75/b range. To do that, it has publicly stated that it will move to replace any volumes lost from Iran and Venezuela. No numbers have officially stated, but 1 million barrels per day was always seen as a significant enough figure by analysts worldwide. And now, it seems, the US believes that is the magic number as well. OPEC meets in two weeks and it is very likely that they too will agree.
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