Oil traders are weighing another implied warning from the Saudi deputy crown prince: the threat of an intensifying clash with Iran over market share, after his comments thwarted supply negotiations in Doha.
Talks between 16 producing countries on April 17 were derailed due to Mohammed Bin Salman’s repeated assertions that the kingdom wouldn’t join an output freeze without Iran.
Saudi Arabia could respond in kind if other producers increased output, the prince cautioned in interviews with Bloomberg News. After international sanctions over its nuclear program were lifted in January, Iran is restoring exports.
“It was an indication to Iranians that, look guys, if you’re not joining the table we have enough power to crank up production. You can question how much more they can crank it up by, but the chances are that, now there’s no freeze, the Saudis will go ahead and increase their production as they were planning,” Abhishek Deshpande, an analyst at Natixis SA in London, said in a Bloomberg Television interview.
After Saudi Arabia resolved that an oil-supply freeze was possible only with the support of all OPEC members, including Iran which resulted in a drop in oil prices on Monday and causing talks in the Qatari capital to unravel. As the two regional antagonists take opposite sides in bloody conflicts in Yemen and Syria, Tensions between the nations have flared.
“If there is anyone that decides to raise their production, then we will not reject any opportunity that knocks on our door,” Prince Mohammed said in an interview published on April 1.
If there was demand for it, the prince, chairman of the Supreme Council of Saudi Arabian Oil Co., said on April 14, the world’s largest oil exporter could increase output by more than 1 million barrels a day, or about 10 percent, to 11.5 million. He added that it could increase further to 12.5 million in six to nine months. According to data compiled by Bloomberg, the country pumped 10.2 million a day last month.
“This just shows how central the tensions and the rivalry in the region between Iran and Saudi Arabia are. There’s zero trust between these two countries right now,” Dan Yergin, vice chairman at IHS Inc., said in a Bloomberg Television interview.
Oil Minister Bijan Namdar Zanganeh said on April 6 that Iran plans to boost output to 4 million barrels a day in the Iranian year through March 2017. That would be an increase of about 800,000 barrels a day from March production. According to shipping data compiled by Bloomberg, its crude shipments have risen by more than 600,000 barrels a day this month.
Mike Wittner, head of oil-market research at Societe Generale SA said that Prince Mohammed’s comments about Saudi capacity are “a statement of their ability rather than their intent” to activate reserves. The two banks said that as it meets higher local demand for air conditioning, the kingdom’s output will increase slightly anyway this summer.
“You’re going to get more Saudi crude seasonally in the summer and people could interpret that as countering extra supplies from other producers. “But there’s no strong suggestion from Saudi Arabia that it will engage in a tit-for-tat strategy with Iran,” Tchilinguirian said.
(Adapted from bloomberg.com)