OPEC Unfazed By Potential Supply Shortage
On Monday, in a decision that rocked oil market participants around the world, the Trump administration announced that they will not be renewing or extending oil waivers they had granted to eight counties allowing them to continue purchasing Iranian oil in reduced quantities despite U.S. sanctions. The original six-month grace period granted by these “significant reduction exceptions” ends on May 1, and Washington is demanding that the nations previously allowed to continue buying Iranian crude immediately and unilaterally cut Tehran off. For many, the decision came as a shock, and many nations dependent on Iranian oil are now scrambling to determine just what that means for the future.
One major group, however, seems surprisingly unruffled. Even after Trump mentioned the Organization of the Petroleum Exporting Countries by name, suggesting that they will be stepping up to fill in any supply gaps once Tehran is edged out, members from OPEC themselves have remained extremely measured on the issue, saying that they will not be rushing to ramp up production.
On Wednesday Saudi Arabia’s energy minister Khalid al-Falih said that the kingdom will not be taking any immediate action to increase oil production, adding that they respond to market fundamentals as opposed to pricing and that the nation, the top oil exporter in the world, will remain focused on maintaining a balanced global oil market above all other concerns. “Inventories are actually continuing to rise despite what is happening in Venezuela and despite the tightening of sanctions on Iran. I don’t see the need to do anything immediately,” Falih was quoted by CNBC in Riyadh. “Our intent is to remain within our voluntary (OPEC) production limit.” Falih added that his country would “be responsive to our customers, especially those who have been under waivers and those whose waivers have been withdrawn.”
This is not to say that Saudi Arabia thinks that the ending of U.S. sanctions waivers will not have an impact on global crude supply and the global oil market as a whole. “We think there will be an uptick in real demand but certainly we are not going to be pre-emptive and increase production,” al-Falih said.
Saudi Arabia is not the only OPEC country vocally taking an unhurried, reserved public stance. On Tuesday, one day after the Trump administration’s waiver-ending announcement, Kuwait’s oil minister Khaled Al Fadhel told reporters that OPEC will hold off on making any decisions on the matter until after OPEC members meet in Jeddah, Saudi Arabia in May and had the opportunity to thoroughly review prices.
That being said, the end of Iranian crude waivers will be a major topic of discussion at the meeting on May 19. “I am sure the topic of American sanctions will be a hot topic to be discussed [at the Joint Ministerial Monitoring Committee meeting in Jeddah in May],” Fadhel told reporters in Tokyo. When pressed to comment about whether OPEC will review its output policy in light of Monday’s announcement, Fadhel elaborated, “A decision will be made only after the review of [oil] prices and how that influences the prices” adding that, “Kuwait as a country, a member in OPEC and a founder in OPEC, we always seek stabilization of [oil] prices across the world.” As to whether Kuwait is ready to ramp up its own oil production to meet any new demand left in Iranian oil’s absence, Fadhel shrugged off a sense of urgency, saying simply: “As a minister of oil, we have not discussed this issue as of now.”
OPEC has another meeting scheduled in Vienna, Austria on June 25, when the participating nations will discuss whether or not they will extend their prior agreement to slash OPEC producers’ output by 1.2 million b/d to continue past the end of June. The current agreement, set to expire at the end of June, allows an exception to production cuts for Iran, as well as Venezuela and Libya. A follow-up meeting with non-OPEC signatories will be held the next day.