• Friday, March 29, 2024
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Saudi Arabia will not ‘immediately’ ramp up oil output after Iran oil waivers end

Iran oil (1)

In a move that may see the benchmark of Nigeria’s crude oil Brent prices remaining high, Saudi Arabia on Wednesday announced that it will not rapidly increase oil output in response to United States decision to stop issuing waivers from sanctions for countries buying oil from Iran, although it will respond to customer’s demands for more oil.

The announcement is the oil-producing country’s first extended public response to the US decision which came on Monday.

“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,” said Saudi’s Energy Minister Khalid Al-Falih at a conference in Riyadh on Wednesday. “We will not increase production preemptively.”

On Monday, the United States said it would not renew exemptions on waivers, adding that it would, alongside Saudi Arabia and the United Arab Emirates, ensure there is enough oil supply in the global market as waivers currently granted to Turkey, South Korea, China, Indian, Japan, Greece, Italy and Taiwan are expected to expire May 2.

“Our intent is to remain within our voluntary Organization of Petroleum Exporting Countries (OPEC) production limit,” Al-Falih said, adding that Riyadh would “be responsive to our customers, especially those who have been under waivers and those whose waivers have been withdrawn”.

“We think there will be an uptick in real demand but certainly we are not going to be pre-emptive and increase production,” he said.

Al-Falih said Saudi Arabia’s oil production in May was pretty much set with very little variation from the last couple of months. June crude allocations would be decided early next month, he said.

The kingdom’s exports in April will be below 7 million barrels per day (bpd), while production is around 9.8 million bpd, Saudi officials have said.

The Trump administration said it had also spoken to Saudi Arabia and the UAE about raising production. Officials from the kingdom have privately said they are not keen to accelerate output until they see the impact of the loss of Iranian barrels in the market.

Brent crude futures fell on Wednesday, trading at $74.48 per barrel at 4pm Nigerian time, after the International Energy Agency said oil markets were “adequately supplied” and “global spare production capacity remains at comfortable levels”.

More than any other country, the situation between international oil players will be a major concern for Nigeria which needs the international oil price to rise and in the worst case, remain steady at any price above the $60 benchmark of the 2019 budget.

Last year, Saudi Arabia increased production towards record levels only for the US to then continue issuing allowances to countries such as China and India for Iranian oil purchases, triggering a drop in crude prices.

This resulted in OPEC and its allies outside of the cartel led by Russia enacting supply curbs since the start of 2019 to bring the market back into balance. Saudi Arabia’s production has held under 10m barrels a day and officials say they can consistently produce an additional 1m b/d if needed.

“We will see what the customers want,” Al-Falih added, marking a change in approach from their strategy last year, which saw the kingdom face the ire of its OPEC peers. In the past five months, its exports have dropped to 1m-1.3m b/d, according to estimates by consultancy FGE Energy.

For Nigeria, the country needs to avoid disruptions in crude production and also hope that the alliance under OPEC achieves its objective, even though many are yet to comply with the output cut, including Nigeria.

Tanker-tracking websites suggest Iran has been secretly exporting rather more: about 1.9m b/d. While China has said it will not comply with any restrictions, other big buyers have said they will seek out alternative suppliers.

Analysts say while it is unlikely that Iran’s exports will fall to zero, they could see a dramatic drop from current levels.

“Intent is to remain within out voluntary production limits but at the same time to be responsive to our customers especially those who have been under waivers,” Falih said.

OPEC and its allies, an alliance known as OPEC+, agreed to cut output by 1.2 million bpd. They meet on June 25-26 to decide whether to extend the pact.

A panel of energy ministers from major oil producers, known as the Joint Ministerial Monitoring Committee (JMMC) meeting, meets on May 19 to discuss the oil market and make recommendations before the June meeting, OPEC sources said.

 

DIPO OLADEHINDE