Officials from Saudi Arabia and Russia this week suggested they would soon produce more oil to make up for reduced Venezuelan output and the impact of renewed US sanctions on Iran.
Oil prices immediately dropped $2 per barrel.
“It is the intent of all producers to ensure that the oil market remains healthy, and if that means adjusting our policy in June, we are certainly prepared to do it,” said SA Energy Minister Khalid Al-Falih, referring to a planned OPEC meeting in Vienna on June 22nd.
“Two years ago we pulled supply. I think in the near future there will be time to release supply,” continued Al-Falih. “It’s likely that it will happen in the second half of this year. We’ve had intensive discussions [with Russia] and I think we’re aligned on that.”
The supply curbs were intended to last until the end of the year, but Russian Energy Minister Alexander Novak told CNN Thursday that Russia was prepared to increase production sooner than that considering market activity and the renewed sanctions on Iran.
The lifting of sanctions on Iran in 2016 allowed it to ramp up oil production significantly. Trump’s recent decision to abandon the JCPOA and reimpose sanctions means that some of Iran’s oil will be pulled from the market.
The decision to increase output sooner than intended should be “a unanimous decision by all parties involved,” said Novak. “And I believe that all of this will be discussed in June…when we gather together and only then can a decision be made.” Novak met with Al-Falih in St. Petersburg earlier this month to review the terms of the 2016 agreement.
The June meeting is likely to be tense, as OPEC members outside the Persian Gulf do not agree with the proposal to increase output. These countries are not able to ramp up production like Russia and SA, and would face decreased revenue if prices drop further.
Even so, history shows us that OPEC’s smaller members tend to line up behind the bigger producers.
“I strongly believe that we will find a compromise because all countries are interested in a stable market,” said Novak.
Editor’s note: To me this only underscores the ability of the OPEC nations to simply take money out of the pockets of Americans when they need more – then graciously give it back when their finances get better. Trump’s plan to increase our energy production is a good one, but we may be beholden to OPEC for a long time.