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Trump Speaks To Saudi King, Demands 2 Million Barrell Production Boost

Courtesy of ZeroHedge. View original post here.

Earlier this week, when within minutes of each other, news hit last Tuesday that first Saudi Arabia would boost production to a record 10.8mmb/d, an increase of nearly 1 million barrels per day from the Kingodm’s current 10.03mmb/d output, only to be followed almost immediately by a warning from the State Department advising US allies of a crackdown on Iran, and demanding they cut their Iranian oil exports to 0 by the Nov. 4 deadline, oil first dipped then spiked, as the market weighed the news of the potential drop in Iranian production far more than any potential Saudi output: after all that was already largely priced in during last weekend’s OPEC summit.

As we said then, “the confluence of these two reports, first sent the price of oil sliding on the Saudi report, followed by a modest boost on the Iran news, thereby assuring more angry tweets from the president.

More angry tweets were guaranteed because since last Tuesday the price of oil has continued to rise, with WTI hitting a fresh 4 year high while Brent is back to $80/barrell.

Sure enough, the “angry tweet” finally came on Saturday morning, when in his 3rd direct address to either OPEC or Saudi Arabia on Twitter, the president said he asked Saudi Arabia to significantly boost its oil production to bring down crude prices.

“Just spoke to King Salman of Saudi Arabia and explained to him that, because of the turmoil & disfunction in Iran and Venezuela, I am asking that Saudi Arabia increase oil production, maybe up to 2,000,000 barrels, to make up the difference…Prices to high! He has agreed!.”

Just spoke to King Salman of Saudi Arabia and explained to him that, because of the turmoil & disfunction in Iran and Venezuela, I am asking that Saudi Arabia increase oil production, maybe up to 2,000,000 barrels, to make up the difference…Prices to high! He has agreed!

— Donald J. Trump (@realDonaldTrump) June 30, 2018

While it wasn’t clear whether Trump was saying the king agreed that prices were too high or to increase output, but clearly the Saudi monarch wanted to placate Trump and get him off the line as soon as possible. The WSJ said that a representative of the Saudi government wasn’t immediately available to comment early Saturday.

Saudi Arabia is already boosting production, having agreed after last weekend’s OPEC summit to scale back compliance with output cuts that have been in place since the end of 2016. According to Saudi Energy Minister Khalid Al-Falih indicated, OPEC would add nearly 1 million barrels a day to the market (although other OPEC states disagreed over the “real” number, with Iran claiming it would be no more than 500kb/d).

As Bloomberg adds, if Saudi Arabia were to concede to Trump’s request, while it would likely send the price of oil sliding – if only briefly – it would also stretch the world’s spare production capacity to the limit, meaning that any supply outage could have an outsized effect on oil prices.

A Saudi concession would also further aggravate other OPEC members, such as Iran and Venezuela, which initially sought to prevent any increase as OPEC, along with allies led by Russia, headed into their Vienna meetings: Venezuela is fighting hyperinflation and is scrambling to keep the price of oil as high as possible, and while Iran is not quite there, it is fast approaching an economic crisis as well, and is therefore in dire need of both higher prices and not losing market share to Saudi Arabia.

The irony behind all this of course, is that it is Trump’s own crackdown against Iran, and his renewed sanctions against Tehran’s oil production that is the main reason behind the oil price surge (an outcome we previewed back in late 2016 in “Will Trump Send The Price Of Oil Soaring?”) and which the president is now desperately trying to beckpedal against as high US gas prices threaten to unfo the positive impact of Trump’s fiscal stimulus and tax cuts and cripple the US economy as consumer are forced to spend more money on gas and less on discretionary purchases, as explained previously

Brent topped $80 a barrel on May 17, the highest level since November 2014. It closed Friday at $79.44l; $80 Brent has also emerged as a “red line” for Trump.

It is unclear of Trump will order an accelerated liquidation from the Strategic Petroleum Reserve if Saudi Arabia drags its feet in boosting output further, although some have suggested this may be the next step.

The bigger strategic problem for Trump is that between Saudi Arabia and Russia pumping at near capacity, it puts the US at the mercy not only of Riyadh but also of, drumroll, Moscow which – in light of the imminent release of the Mueller report – is the last place the president would like to find himself. After all, should Russia decide to slash production indefinitely by 1, 2mmb/d or more, watch as gas prices in the US explode.


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