Oil-related Developments - October 2018

Oil rose to its highest price in four years on 30 September, to $82.72 on Brent, and $ 73.25 on WTI, after Saudi Arabia and Russia downplayed calls from the US to increase production.

Earlier, President Donald Trump had attacked OPEC, saying the 15-member oil organisation should keep crude prices low because of the military protection the US provided for the region. “We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!” Trump wrote on Twitter.

The Saudi position is to make clear that it can boost supplies in response to market demand but will not enhance production and bring down prices only to appease the US president. Saudi Arabia has said it can pump 1.5 million b/d above its current output of some 10.4 million b/d – which could be made available when US sanctions set to cripple Iranian supplies start in early November.

Saudi Arabia will boost its crude oil production in the coming months as it expects stronger demand, its minister Khalid al Falih clarified at a monitoring committee meeting of OPEC and non-OPEC members in Algiers on 23 September. He insisted that the kingdom stood ready to meet any customer requests for crude.

Saudi Aramco can produce 12 million b/d at will, he said, and once negotiations with Kuwait are complete, fields in the Neutral Zone shared by the two countries could add another 500,000 b/d.  "Our plan is to respond to demand. If demand [for Saudi crude] is 10.9 million b/d you can certainly take it to the bank that we will meet it. But the demand is 10.5 million b/d or 10.6 million b/d. I think October will be more than this," Al-Falih said.

But many market watchers are sceptical that Saudi Arabia has the claimed spare capacity, raising doubts on whether OPEC's largest producer can prevent a price increase from a supply shortage following imposition of sanctions on Iranian oil. So far, the country has never produced above 10.7 million b/d. The US Energy information Administration estimates that all 15 of OPEC's members hold a combined spare production capacity of 1.42 million b/d. Other assessments are more generous: the International Energy Agency estimates Saudi spare capacity at 1.62 million b/d and total production capacity at 12.04 million b/d. Other OPEC members are also expected to contribute. The UAE claims some 500,000 b/d of spare capacity, while Kuwait has about 100,000 b/d.


October 1, 2018

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About the Author

Ambassador Talmiz Ahmed

Former Ambassador of India to Saudia Arabia, Oman and UAE, monitors developments in the West Asian region.  

Ambassador Talmiz Ahmad joined the Indian Foreign Service in 1974. Early in his career, he was posted in a number of West Asian countries such as Kuwait, Iraq and Yemen and later, between 1987 and 1990, he was Consul General in Jeddah. He also held positions in the Indian missions in New York, London and Pretoria. He served as Indian Ambassador to Saudi Arabia (2000-03; 2010-11); Oman (2003-04), and the UAE (2007-10). He was also Additional Secretary for International Cooperation in the Ministry of Petroleum and Natural Gas in 2004-06. In July 2011, the Saudi Government conferred on him the King Abdul Aziz Medal First Class for his contribution to the promotion of Indo – Saudi relations. After retirement from the Foreign Service in 2011, he worked in the corporate sector in Dubai for three years. He is now a full-time academic and holds the Ram Sathe Chair for International Studies, Symbiosis International University. He has published three books: Reform in the Arab World: External Influences and Regional Debates (2005), Children of Abraham at War: the Clash of Messianic Militarisms (2010), and The Islamist Challenge in West Asia: Doctrinal and Political Competitions after the Arab Spring (2013). He writes and lectures frequently on Political Islam, the politics and economics of West Asia and the Indian Ocean and energy security issues.