Economy

Oil dips as trade rows threaten growth, but market tight

Oil dips as trade rows threaten growth, but market tight

US President Donald Trump said on Saturday that Saudi King Salman has agreed to ramp up oil production in order to help offset the crude being pumped by Iran and Venezuela.

In a tweet, Trump said Saudi Arabia's King Salman had told him he would raise output by two-million barrels per day.

Turmoil has surrounded Iran after Trump announced the US was pulling out of the Iran nuclear deal, and has since urged allies to stop buying oil from the country.

OPEC and non-OPEC countries said they would raise supply by returning to 100 percent compliance with previously agreed output cuts, after months of underproduction.

Garbis Iradian, head of research for the Mena region at the Institute of International Finance, said near-term oil production growth from the USA and Canada may not be enough to offset supply shortfalls in Venezuela, likely losses from Iran, and the 1.4 million bpd growth in global demand for oil.

Al Jazeera's Rosiland Jordan, reporting from Washington, DC, said "it is not unusual" for the White House to put pressure on OPEC members to increase oil output "mainly because the U.S. president is first and foremost concerned about the cost of gasoline and consumer fuels, especially in an election year" - the United States will hold midterm congressional polls in November.

USA retail unleaded gasoline prices, including taxes, averaged $2.833 a gallon for the week ended 25 June, according to the nation's Energy Information Administration. However, the price action on Friday suggests that buyers are still coming in and aggressively willing to chase this market higher.

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Replacing Iranian oil will not be a problem but margins will be hit as Tehran offers the best commercial terms, another official said.

"There are companies and traders that are willing to give you a 60 day credit, crude is available in the market", the source said. Washington is telling buyers to stop all purchases of the country's crude, while Opec and its allies are bowing to U.S. pressure to raise output and fill the gap.

The White House statement undercut a tweet by Trump earlier in the day when he wrote that Saudi Arabia had definitely agreed to produce more oil.

In total, Europe accounts for a fifth of Iran's daily 2.5m barrels of crude.

Continuing increases came despite the decision last week by OPEC and its allies to increase production by as much as 1 million barrels per day.

Perry said the United States remains ready to tap the Strategic Petroleum Reserve, the country's emergency stockpiles, if necessary, but that at the moment "I wouldn't recommend it".

During the previous round of sanctions, India was one of the few countries that continued to buy Iranian oil, although it had to reduce imports as shipping, insurance and banking channels were choked due to the European and USA sanctions. Iran may be left with few options beyond convincing China to buy more of its oil, risking over-reliance on what's already its biggest customer. According to Reuters, Brent is expected to average $72.58 a barrel in 2018, 90 cents higher than the $71.68 forecast in last month's poll while the WTI is now seen averaging $66.79 a barrel in 2018, compared with $66.47 forecast last month.


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