A Cold Front Between Saudi Arabia and The United States
The alliance between Saudi Arabia and the U.S. has decreased with the sanctions on Iran last minutes softening. Allowing customers to continue to purchase and triggering a crash in oil prices.
When OPEC meet in the Azeri capital of Baku, a sense of betrayal loomed.
“The way that the Saudis were misled by the U.S. president concerning Iran sanctions is something that they can still taste,” said Ed Morse, head of commodities research at Citigroup Inc. in New York.
It is the third year the members and extended members of OPEC are curbing supply in order to defend crude prices. While they were able to recover 25% in Brent this year, the current price of about $67/bbl remain well below the levels that most producers need to cover government spending.
Saudi Arabia requires an average price of $80/bbl to fund plans for increased spending this year per Bloomberg calculations based on its 2019 budge.
The kingdom’s financial pressures are growing as Crown Prince Mohammed Bin Salman pursue a radical change to diversify the economy away from oil, while waging a proxy war in Yemen and dealing with the fallout from the Khashoggi killing.
The Saudis are driven to continue with their strategy, despite the antitrust legislation known as NOPEC from U.S. congress.
When Trump tweeted on Feb. 25 that OPEC should “relax” its stance on tightening supplies, he was gently rebuffed by Saudi Arabian Energy Minister Khalid Al-Falih, who said he favors maintaining output curbs in the second half of the year.
Al-Falih’s defiant tone has been backed up by the kingdom’s recent actions.
Saudi assisted Trump’s diplomatic campaign against Tehran by raising production to reach level above 11 MMbpd. But when Trump decided to let a number of Iran’s customers keep buying, it sent the price down to 35% in the fourth quarter of last year.
“We’re going to see quite a different Saudi Arabia maybe than what we saw in the fall,” said Mohammad Darwazah, a director at Medley Global Advisers. “I don’t think they’re going to be as accommodative.”
A panel of key nations in OPEC and alliance are going to meet with the Joint Ministerial Monitoring Committee, is gathering in Azerbaijan to review oil markets before the whole group meets in April and in June.
There is more to come from OPEC and Saudi Arabia as Trump leading the sanction against Iran and Venezuela. It might also be an advantage is the sanctions are kept against both countries that might be at the advantage of the Kingdom’s if its create a shortage in oil production.