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Israel’s sudden attack on Iran threatened to disrupt the Middle East oil supply, and made the OPEC+ cartel’s recent decision to keep crude production in the spotlight.
A group of Saudi-led producers have surprised the oil market this year by quickly tracking the revival of idle production even as crude prices fall. The cartel has spurred speculation that the cartel is responding to White House pressures to boost its output ahead of the conflict with Iran.
The US had held several nuclear talks with Iran, but President Donald Trump had warned that if diplomacy fails, he would consider military options if Israel was openly pushing for strikes.
“There’s no doubt that Trump asked Saudi Arabia to pump more oil to address three biggest issues: Iran, Russia and inflation,” said Bob McNally, former adviser to President George W. Bush and now head of the Rapidan Energy Group.
“But it’s a big leap to suggest that this ‘question’ is to enable attacks. ”
Officials in Riyadh were well aware that pumping more oil would make Trump happy.
However, analysts and traders say producers have their own reasons to rewind production cuts, independent of geopolitical events.
After throttling supply for almost three years to raise prices, the output curbs were no longer making much of an impact, analysts said. It makes sense to start a recovery in the power output in the hopes of regaining market share.
Several OPEC+ members, especially Kazakhstan, were above the quota. It irritated Saudi Arabia, the group’s biggest exporter and de facto leader. Carrying most of the curbs on his back, he reduced his own production by 2 million barrels a day. This is about 2% of the total global supply.
Despite the US “maximum pressure” campaign on Iran (including Trump’s threat to further constrain the country’s oil exports), Riyadh has been reluctant to pump more crude pumps before the chaos.
Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman told people that the kingdom would not repeat the 2018 mistake. Trump only allows the US president to grant exemptions to many Iranian oil importers when OPEC+ boosted output ahead of Tehran’s crackdown on exports.
The move helped send oil prices to low prices that punish penalties of less than $50 per barrel by December of that year.
Saudi Arabia remembers a series of events and the fact that Abdulaziz claimed it would not repeat the error, people familiar with the matter say. Saudi Arabia’s Ministry of Energy did not respond to requests for comment.
If Saudi Arabia’s recent production move had been a response to the US, there may not have been much for Iran, but the kingdom’s efforts to gain access to American technology, says Helima Croft, head of global commodity strategy at RBC Capital Markets.
Trump praised Saudi Crown Prince Mohammed bin Salman during his visit to Saudi Arabia last month.
“We opposed the proposal that there was a contract with the ‘Pump for Trump’, but Riyadh has stepped away from Trump’s visit with significant deliverables for the construction of artificial intelligence, civilian nuclear programs and the defense sector,” Croft said. “They certainly like national status in Washington.”
Still, Friday’s big gross price jump after Israel’s attack on Iran narrows Trump’s options when dealing with other looming geopolitical issues, raising concerns that it could drive our inflation, analysts say.
“The addition of OPEC+ supply has created space for the disruption of supply that could be brought about from Israeli attacks on Iran. It is also possible that they could have created a space for new Russian sanctions. But they will not create space for both.
He said Trump could look to the world’s largest emergency stockpile, the U.S. strategic oil reserves, if oil prices are extended or supply is suspended in the Middle East.
The SPR has around 400 million barrels, well below its capacity of 727 million barrels, following a drawdown by former President Joe Biden to limit price increases after the full-scale invasion of Russia’s Ukraine.
Trump could also ask Saudi Arabia to pump more oil, but this would raise a difficult question for Riyadh. Iran is one of the original members of the OPEC, and the kingdom will be wary of disrupting détente between Iran on the Gulf and its Arab neighbours, analysts said.
“What will the president do when oil prices rise? Well, the first thing is that they pick up and ring Saudi Arabia. But Riyadh and other OPEC+ members will respond with caution,” said McNally of Rapidhan.
