The Us Has Asked OPEC To Increase Output By 1m B/d And Saudi Arabia May Agree This Time
- Jun 07, 2018 -

The trump administration has asked Saudi Arabia and other OPEC producers to increase crude production by 1 million barrels a day, bloomberg reported.Unlike in the past, OPEC seems more willing to accept the us call to increase its production, but the increase is not just because of Washington's demands.

There are a number of reasons why Saudi Arabia might agree to U.S. demands:

First, the trump administration has been very vocal in its support of Saudi Arabia and relatively tough on Iran.

Second, the Saudi government led by salman seems more belligerent, and hope to take a positive foreign policy with Iran, Saudi Arabia needs to support the call to placate the us government in the United States.

Finally, the oil market itself.Ten years ago, the oil market did not have many negative factors;Now, with us shale oil production soaring, Saudi Arabia has to worry about us shale oil taking market share.

In general, if oil prices rise too high, OPEC will probably lead to the higher cost of supply, and accelerated the shale oil price cycle, therefore high oil prices could lead to a wave of new supply and oil shock again in a short time.

The United States is asking OPEC to increase production

This is not the first time the us has asked them to increase oil supplies to ease high prices.In early 2008, former U.S. President George w. bush pressed Saudi Arabia to increase its production.In 2012, after the announcement of sanctions against Iran, the Obama administration also asked Saudi Arabia to increase production, which Saudi Arabia again refused.

Now the us finds itself in a similar situation to six years ago: oil prices have climbed to multiyear highs and sanctions against Iran could push up prices.But unlike previous us administrations, the trump administration has come up with a specific number.

Although, according to people familiar with the U.S. lawmakers often criticized OPEC countries when high oil prices, the government also sometimes encourage OPEC to increase production, but the government put forward specific request is rare, it is not clear how the specific request of the United States.

The us intervention was actually traceable.As early as April, Mr. Trump used twitter to make a rare critique of OPEC's efforts to push up oil prices.Last month, U.S. Treasury secretary Robert nuchin said the United States had engaged in various talks with those willing to increase crude oil production to offset Iran's supply gap.

Mr Nuchin said the us had spoken to all sides and was willing to increase crude supplies to offset the drop in supplies caused by Iran's sanctions.Almost at the same time, Saudi Arabia said it would try to mitigate the impact of any supply shortage in the crude oil market.

OPEC production is expected to increase?

At the same time, a few weeks ago, OPEC's secretary-general Mr. Jindu said that in April trump's remarks to a certain extent affect the crude oil output, OPEC is necessary to take action to stop the rise in oil prices too much.

OPEC officials gathered in Kuwait a few days ago to try to work out a strategy ahead of the June 22 meeting.Although OPEC officials did not reveal more details, but they promise "a healthy market conditions are needed to stimulate oil industry investment, ensure the stable supply to meet rising demand, to offset the decline in global parts production."

In addition to these, Saudi Arabia and Russia, the doe long series of public comments also indicated that OPEC's two biggest oil producer may also agreed to increase after two weeks, although details still need to be finalized: Russia's goal is to increase oil supplies, probably is 1 million barrels a day, and Saudi Arabia may be relatively modest.

Notably, OPEC and non-opec members will meet on June 22 to decide whether to increase oil production in response to potential supply shortages in Iran and venezuela.