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‘If OPEC Survives, It Will Be Without Iran’: As Saudi Arabia’s Oil Production Surges, Analysts Ponder The Future

Nothing lasts forever, I suppose.

You can’t say the Saudis aren’t trying when it comes to pacifying Donald Trump.

The Kingdom pumped some 10.5 million b/d last month, the most since late 2016 amid pressure from the Trump administration to put the brakes on rising crude prices that threaten to eat away at consumer gains from the GOP tax cuts by raising prices at the pump.

Unilateral action has been variously decried by Iran, who initially attempted to undermine a production hike deal at the OPEC meeting in Vienna last month, imploring the cartel to avoid becoming a slave to the U.S. President’s fiscal agenda.

Subsequently, news that the State Department is pressuring U.S. allies to cut imports of Iranian crude to zero by November angered Tehran further and ultimately contributed to supply concerns that effectively negated the impact of the promised production hike by Saudi Arabia, Russia and others. Two Saturdays ago, in a truly remarkable weekend tweet, Trump suggested he had convinced King Salman to hike production by 2 million b/d.

“Any production increases above limits agreed to by OPEC are a breach of output agreement reached last month in Vienna”, Iran’s Oil Minister Bijan Zanganeh said the next day, in a letter to OPEC President Suhail Al Mazrouei.

In its latest monthly report, OPEC says oil demand will leap past 100 million b/d in 2019. To wit:

World oil demand is assumed to rise by 1.65 mb/d in 2018, unchanged from the previous month’s report despite revisions within the regions, which offset each other. Global world oil demand is now projected to average 98.85 mb/d.

For 2019, initial projections for world oil demand growth are pegged at 1.45 mb/d with total annual global consumption anticipated to exceed the historical threshold of 100 mb/d.

OPEC

The cartel sees non-OPEC oil supply next year growing 2.1 mb/d for an average 61.64 mb/d.

As for June, here are the relevant excerpts from the report with the above-mentioned numbers for Saudi Arabia highlighted:

production

And here’s the accompanying color:

According to secondary sources, total OPEC-15 crude oil production averaged 32.33 mb/d in June, an increase of 173 tb/d over the previous month. Crude oil output increased mostly in Saudi Arabia, Iraq, Nigeria, Kuwait and UAE, while production showed declines in Libya, Venezuela and Angola.

As a reminder, disruptions in Libya and Venezuela are conspiring with jitters about the Iran sanctions to effectively overwhelm the Saudis’ efforts to put a brake on rising prices.

Supple

Washington’s allies, unsure of what the future holds for waivers, are already beginning to halt Iranian crude imports, prompting analysts to quickly come to terms with a new reality.

On Wednesday, Petromatrix (a consultancy) said OPEC might have a hard time surviving in its current form given the cooperation between Riyadh and Moscow on replacing Iranian barrels lost to U.S. sanctions.

“The framework of OPEC is already changing due to the participation of Russia, but all the public U.S. statements about Saudi Arabia coordinating with the U.S. to replace oil supplies for those that stop importing crude oil from Iran creates a basis for the future obsolescence of OPEC as it currently stands”, Petromatrix said, adding that “if OPEC survives as an organization, it will have to be without Iran”.

Full July OPEC report

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