As oil continued its price plunge in a President Donald Trump engineered sell-off, it appears that some members of OPEC feel like they have been hoodwinked. Apparently, Saudi Arabia and other OPEC members feel like President Trump misled them into raising oil production to create a short-term oversupplied market. President Trump signaled that he was going to have no mercy on Iran and told Saudi Arabia and OPEC that he was committed to getting Iranian oil exports down to zero.
Even some U.S. pipeline and oil producers were probably caught by surprise when the President granted waivers to 8 countries and did not follow through on his promise to get Iranian oil exports to zero. Many of these firms rushed completion of pipelines and tried to raise output to try to make up for the Iranian shortfall. This comes as the market is finally starting to wake up to the fact that we could be facing a global distillate shortfall as those prices soared and kept oil from a total collapse. Yet, while the market seems a little concerned about an oversupplied market right now, oil futures in the backend of the curve rallied hard as the longer-term outlook for oil remains very tight. This comes as the Energy Information Agency (EIA) makes an upward revision to U.S. oil production, putting the number at a new record high, which will be needed as refiners are going to have to produce record amounts of distillate to meet demand in a globally undersupplied market.
Hell hath no fury as an OPEC scorned. Based on some reports, Saudi Arabia is livid at the President for helping create this oil price crash. While Saudi Arabia is in no position to express its anger out in public, they may do so by cutting production very shortly. There are reports that the Saudi are going to start raising prices on Saudi crude and at the emergency OPEC meeting this weekend will lay the groundwork for production cuts in the area of 1.4 million barrels. Russia’s TASS news agency said that Russia and Saudi Arabia had started bilateral discussions over possible curbs to output in 2019. Reuters reported that separately, a top OPEC official from Iran, which has been angered by higher production in Saudi Arabia and Russia in response to Trump’s calls, said Riyadh and Moscow needed to cut output by 1 million barrels per day. “There is no other way for Saudi Arabia and Russia,” Hossein Kazempour Ardebili, who represents Iran on OPEC’s board of governors, told Reuters when asked whether producers needed to trim output in 2019.” This might provide some cover as the Saudis want to reverse the Trump price drop as it has cost the cartel billions of dollars.
