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- Iran warns US against seizure of oil tanker
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- Zarif reacts to release of Iranian tanker in Gibraltar
- Israel, UAE engaged in secret talks on Iran arranged by US: Report
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TEHRAN, July 08 - The group doesn't have the spare capacity to replace the loss of output from sanctions on Iran.
TEHRAN, Young Journalists Club (YJC) - US President Donald Trump has once again taken to Twitter to slam OPEC for driving up oil prices.
The group is a useful scapegoat on which to pin the blame for rising gasoline prices at home, but getting it to pump more crude won’t bring them down for long. The way to really lower prices is for him to change his policy on Iran.
Unfortunately, that’s not likely to happen, so oil prices could well keep rising. Oil prices have climbed by more than 50 percent in a year, and very nearly touched $80 a barrel last week as traders anticipated that the world’s margin of spare production capacity available to offset supply disruptions is set to seriously shrink.
They know something that the president either can’t or won’t understand: When sanctions on Iran come into force in November, producers don’t have the scope to make up for its lost output. If Trump succeeds in halting all of Iran’s oil exports, they will have to replace 2.7 million barrels a day of Iranian supply. That’s a big hole to fill.
And if they can’t do it, the cost will be steep. According to Bank of America Merrill Lynch, a complete shutdown of Iranian sales could push oil prices above $120 a barrel if Saudi Arabia can’t keep up.
In Trump’s world, the gasoline prices he focuses on should already be headed down. On Wednesday Saudi Arabia said it pumped about 10.5 million barrels of crude a day last month, preempting the deal reached among the OPEC+ group of countries in Vienna.
That’s an increase of about 500,000 barrels a day from May, making it the biggest month-on-month jump in the kingdom’s output since June 2004.
But there’s a problem. The production jump ought to have shown up as a similar surge in total OPEC output. It didn't. The increase was entirely overwhelmed by declines elsewhere in the group. Add in the loss of 350,000 barrels a day of Canadian supply from an explosion at an oil-sands upgrader in Fort McMurray, and the entire boost from Saudi Arabia is gone.
The simple truth is there isn’t enough spare production capacity in the world to replace the complete loss of Iranian exports. Saudi Arabia can boost output to 11.5 million barrels a day immediately and go to 12.5 million in six to nine months, Crown Prince Mohammed bin Salman told Bloomberg in 2016.
He’s said nothing since that interview to suggest the figures have changed. Others are less optimistic — the International Energy Agency said at the time that going beyond 11 million would require boosting costly offshore production.
The most that Saudi Arabia has ever pumped on a monthly average basis is 10.72 million barrels a day in November 2016, according to official figures provided to OPEC.
Source: Bloomberg
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