Saudis hold firm on oil output cuts after Trump says "relax"
RIYADH (Bloomberg) -- Saudi Arabia is leaning toward extending OPEC cuts into the second half of 2019, potentially pitting the group against U.S. President Donald Trump’s demand to keep prices down.
Oil inventories in the U.S. are “brimming,” and reducing that glut remains the main goal for the group, Saudi Arabian Energy Minister Khalid Al-Falih said in Riyadh. The kingdom plans further curbs to output in March, he said.
Trump has renewed his pressure on OPEC and its allies, a coalition referred to as OPEC+, after they started a new round of production cuts last month. The group’s supply reduction, plus U.S. sanctions on Venezuela and Iran, have contributed to a crude-price rally of more than 20% this year.
“All of the outlooks that I have seen tell us that we will continue, we’ll need to continue, to moderate production in the second half of this year,” Al-Falih said. But the minister who guides policy for the world’s biggest oil exporter provided some wiggle room that could placate Trump’s demands.
OPEC’s intervention hinges on the continuation of supply curbs in Libya, Venezuela and Iran, and extending the cuts won’t be “automatic,” he said. “If we find out that the fundamentals are tightening by June, you can bet that I will be, just like we did last year, encouraging my colleagues within OPEC+ to ease” the cuts and not allow the market to tighten.
In a direct response to Trump, who urged OPEC in a tweet to “please relax and take it easy,” Al-Falih said: “We are taking it easy; 25 countries are taking a very slow and measured approach.”
Last year, the Saudis boosted production to record levels after Trump expressed displeasure at rising prices. Crude plunged 35% in the fourth quarter as that flood of supply was exacerbated by the surprise U.S. decision to tweak sanctions on Iran, allowing for some waivers on its oil exports.
While analysts don’t expect OPEC to immediately bow to U.S. pressure this time, the group faces risk in the form of the so-called No Oil Producing and Exporting Cartels Act, or NOPEC, a bill resurrected by U.S. legislators that would make the group subject to antitrust laws used more than a century ago to break up John Rockefeller’s Standard Oil Trust.
Congressional support for the bill intensified last year as oil prices neared a four-year high, and Trump publicly blasted OPEC. In the past, the White House has opposed the NOPEC legislation -- both George W. Bush and Barack Obama threatened to veto it. OPEC’s concern now is that Trump may break with his predecessors.