Saudi Arabia promised to act decisively to keep oil prices under control, signalling a real supply boost approaching one million barrels a day is on the way to global markets.
“We will do whatever is necessary to keep the market in balance,” Saudi Energy Minister Khalid Al-Falih told reporters on Saturday, while sitting alongside his Russian counterpart Alexander Novak at the Organization of the Petroleum Exporting Countries (OPEC) headquarters in Vienna. Consumers can rest assured that “their energy supplies are available, are being stewarded by a responsible group of producers.”
Al-Falih went out of his way to give a detailed explanation of how the so-called OPEC+ deal will work, clarifying a vaguely worded agreement and contradictory statements from other ministers that spurred a rally in crude futures on Friday. It would be troubling if that jump in prices became a trend, the minister said, adding that producers with spare capacity, such as Saudi Arabia, can fill any gap left by falling production elsewhere.
"The only country that can increase production is Saudi Arabia, so its interpretation of the deal is the one that matters," said Ann-Louise Hittle, a veteran OPEC watcher at consultant Wood Mackenzie Ltd.
Al-Falih’s assurances – backed up by Novak – follow pressure from United States (US) President Donald Trump’s anti-OPEC tweeting, as well as more conventional lobbying by major oil buyers. They give Saudi Arabia and Russia more room to ease consumer anxiety about prices, but risk a backlash from Iran and Venezuela, founder members of OPEC that insist members can’t snatch one another’s market share.
An Iranian OPEC delegate immediately criticized the Saudi position, saying the agreement didn’t allow any member to replace someone else’s market share. Countries that do so will be cheating on the deal, the delegate said, asking not to be named because of the sensitivity of the matter. Venezuela’s Energy Minister Manuel Quevedo made the same argument on Twitter.
The Iranian delegate added, however, that Venezuela and other countries producing below their quota have few ways of enforcing their views, beyond statements of disapproval.
Friday’s deal between OPEC members pledged a “nominal” supply increase of one million barrels a day. In reality, ministers said several countries are unable to pump more so the real output boost would have been smaller – ranging from Iran’s 500,000 barrel-a-day estimate up to Iraq’s prediction for as much as 800,000.
The vague wording of that agreement left it open to such a broad range of interpretations, helping to secure a last-minute compromise that overcame Iranian opposition to any increase.
Nominal versus real
Saturday’s accord, in which non-OPEC countries ratified the previous day’s deal, dropped the pledge that the one million barrel-a-day increase should be shared proportionally among members, opening the way for the full volume to flow, Al-Falih said.
"If we allocated the number pro-rata basis among the 24 countries, given the capacity of those countries that can increase, it had been estimated that about 60 percent will be achieved,” Al-Falih said. “But because we went away from allocation on a pro-rata basis, we will be closer to one million than to 600,000 barrels a day."
The group’s communique still pledged a return to 100 percent compliance with the original 2016 agreement – ending a period of deeper-than-intended cuts – but Al-Falih insisted that no individual country will be subject to a strict output cap.
Novak was fully aligned with Al-Falih, saying Russia would contribute as much as 200,000 barrels a day to the supply boost.
“The real increase of production would be a figure exactly close to one million,” Novak said in an interview. "The decision is very straightforward.” United Arab Emirates Energy Minister Suhail Al Mazrouei gave similar assurances.
Al-Falih also said the OPEC+ Joint Ministerial Monitoring Committee, which has overseen the group’s supply cuts, will play a key role in managing how production is increased. Both Russia and Saudi Arabia are members, and the committee’s increasing importance will help cement their dominance over a coalition that pumps more than half the world’s crude.
State oil company Saudi Aramco had anticipated this week’s decision and was already ramping up output, Al-Falih said. He declined to say how much the kingdom would pump in July but promised a month-on-month hike in the order of "hundreds of thousands of barrels" rather than "tens of thousands". He later floated a range of 250,000 to 400,000 barrels a day.
Tanker-tracking data for early June showed a significant jump in shipments from the kingdom.
"The oil is already on the water," said Daniel Gerber, the head of tanker tracker company Petro-Logistics SA in Geneva. – Bloomberg