US said to ask OPEC for 1 million barrel a day output hike

Move comes after President Donald Trump publicly complained about OPEC policy and rising oil prices on Twitter
US President Donald Trump. (NICHOLAS KAMM/AFP/Getty Images)
By Bloomberg
Tue 05 Jun 2018 03:13 PM

The US government has quietly asked Saudi Arabia and some other OPEC producers to increase oil production by about 1 million barrels a day, according to people familiar with the matter.

The rare request came after US retail gasoline prices surged to their highest in more than three years and President Donald Trump publicly complained about OPEC policy and rising oil prices on Twitter.

It also follows Washington’s decision to reimpose sanctions on Iran’s crude exports that had previously displaced about 1 million barrels a day, or just over 1 percent of global production.

While US lawmakers have habitually criticised the Organization of Petroleum Exporting Countries at times of high oil prices, and the government has on occasion encouraged the cartel to pump more, it’s unusual for Washington to ask for a specific output hike, the same people said, asking not to be named discussing private conversations. It’s not clear precisely how the request was communicated.

The American request was debated at a meeting of some Arab oil ministers over the weekend in Kuwait City, the people said. A statement published after the talks pledged to “ensure stable oil supplies are made available in a timely manner to meet growing demand and offset declines in some parts of the world.”

Saudi Arabia and Russia last month proposed a gradual production increase, although other members of the group have yet to agree.

Benchmark Brent oil futures dropped as much as 1.5 percent to $74.16 a barrel in London trading after the US request was reported.

"Looks like OPEC is at it again," Trump wrote in mid-April in a post on Twitter. "Oil prices are artificially Very High! No good and will not be accepted!"

The White House declined to comment on specific conversations, but a spokesperson for the US National Security Council said access to affordable and reliable energy underpins global economic growth and the nation’s security.

"We welcome any market-based action that increases energy access and fosters a healthy global economy," the spokesperson said.

US Treasury Secretary Steven Mnuchin last month disclosed Washington had "various conversations with various parties about different parties that would be willing to increase oil supply to offset" the impact of US sanctions on Iranian oil output.

Although Mnuchin declined to provide specifics, only four countries among OPEC and its allies hold enough spare production capacity to offset that impact: Saudi Arabia, Russia, the United Arab Emirates and Kuwait.

OPEC and a group of non-OPEC countries including Russia, Mexico and Kazakhstan agreed in late 2016 to cut oil output by a combined 1.8 million barrels a day in an effort to boost oil prices.

Brent crude, the global benchmark, has risen from less than $45 a barrel before the deal was signed to more than $80 a barrel last month.

The OPEC deal removed more crude than originally intended from the market because of the collapse of the Venezuelan energy industry. With oil inventories in developed countries back to their five-year average and fuel prices approaching painful levels for consumers, Saudi Arabia and Russia have started talking about boosting output again, prompting Brent to slide back toward $75.

OPEC and its allies will discuss their production policy for the second half of the year in meetings scheduled on June 22 and 23 in Vienna. Saudi Oil Minister Khalid Al-Falih last month said the kingdom shared the "anxiety" of consuming nations about high oil prices and added that OPEC and its allies were "likely" to boost output.

The most recent comments by Trump and the request for extra oil are among the most forceful U. intervention in OPEC affairs since Bill Richardson, the energy secretary during the second administration of Bill Clinton, phoned the Saudi minister in the middle of an OPEC meeting in 2000 asking for a production increase. The intervention enraged other members of the cartel, exacerbating a schism between Saudi Arabia and Iran.

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Last Updated: Tue 05 Jun 2018 03:18 PM GST

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