Saudi Arabia, Russia reject Trump’s call for lower prices

Saudi Arabia’s and Russia’s move to keep output steady is a remarkable development that will be tested when sanctions on Iran go into force in November.
Sunday 07/10/2018
Saudi Arabian Energy Minister Khalid al-Falih during the inaugural session ceremony of the OPEC Ministerial Monitoring Committee in Algiers, Algeria September 23, 2018. (Reuters)
Saudi Arabian Energy Minister Khalid al-Falih during the inaugural session ceremony of the OPEC Ministerial Monitoring Committee in Algiers, Algeria September 23, 2018. (Reuters)

TUNIS - Saudi Arabia and Russia, the world’s biggest oil exporters, will not force a reduction in the price of oil in the short term, they said, drawing the ire of US President Donald Trump, who has pushed for a price decrease.

Saudi Energy Minister Khalid al-Falih, speaking September 23 at a meeting of OPEC and non-OPEC energy ministers, said “I do not influence prices” before meeting participants issued a statement saying they were satisfied with the “current oil market outlook, with an overall healthy balance between supply and demand."

However, the oil exporting partners urged "countries with spare capacity to work with customers to meet their demand during the remaining month of 2018."

The comments come as OPEC and its main ally, Russia, come under pressure from the United States to drive down global oil prices, which recently exceeded $80 a barrel. Trump assailed OPEC in a speech September 25 at the UN General Assembly, saying the cartel was “ripping off” the world.

“We defend many of these nations for nothing and then they take advantage of us by giving us high oil prices. Not good,” Trump said. "OPEC and OPEC nations are as usual ripping off the rest of the world and I don't like it. Nobody should like it.

"We will remember," Trump added, implying that US security support could be conditioned on oil policy.

Days earlier, Trump posted on Twitter: “The OPEC monopoly must get prices down now!”

Given the US president’s stated position, Saudi Arabia’s and Russia’s move to keep output steady is a remarkable development that will be tested when sanctions on Iran go into force in November, fuelling further price hikes, analysts said.

“It is quite remarkable the apparent resilience of Saudi Arabia in the face of the pressures applied by Donald Trump, especially via his tweets,” said Pierre Terzian, director-general of Petrostrategies, an energy think-tank in Paris.

“We have the perception that the Saudis learned better how to navigate the cracks inside the American executive power,” he said.

“The Saudis are leaning more and more towards Russia... I have the understanding that they (the Saudis) are listening more and more carefully to the analyses of Russia to distinguish between the thundering messages from Trump aimed at his domestic public and the signals sent by other US officials to their partners abroad,” said Terzian.

OPEC and Russia capped oil output in January 2017 to drive up prices. The move helped OPEC and its allies cope with the United States’ expanding shale oil production. However, OPEC members and their allies agreed to a modest increase in output in June, due to higher global oil prices fuelled by instability in Venezuela and sanctions on Iran.

French President Emmanuel Macron weighed in on Trump's call for lower oil prices on September 25, saying that "if he (Trump) goes to the end of his logic, he'll see that it's good for the oil price that Iran can sell it."

"It's good for peace and global oil prices. Otherwise, there is an impasse in the rationale for which I don't have the answer. It's an economic reality, supply and demand," Macron added.

US Energy Secretary Rick Perry said earlier in September the OPEC and Russia "are to be admired and appreciated" for raising their production to avoid a spike in oil prices.

The mixed messages demonstrate how the Trump administration is walking a tightrope to both reimpose sanctions on Iran’s oil exports and prevent a major spike in oil prices. Iranian oil exports have slumped ahead of a second round of US sanctions to be imposed November 4.

Iran's economy is likely to contract 3% this year and 4% in 2019, the Institute of International Finance said. Its report added that Iran's crude oil and condensates exports, which stood at 2.8 million barrels a day in April, were estimated at 2 million barrels a day in September.

“All the circumstances point towards more cooperation between Russia and Saudi Arabia in oil issues,” said Terzian. “The two countries are working closely in drafting a framework to make institutional the cooperation between OPEC and non-OPEC countries to be submitted to the meeting of OPEC and allies outside the cartel in December.”

“The entente between Russia and Saudi Arabia despite the subjects in which they are opposed, including Syria and Iran among other things, is the most interesting geostrategic fact of the last two years,” he added.

Abdelmadjid Attar, former head of Algeria’s state energy firm Sonatrach, said a meeting between OPEC and non-OPEC exporters in December will be difficult due to a possible global “oil shock.”

If India and China enforce sanctions on Iran, the global market will lose up to 2 million barrels a day, he said, which could cause prices to jump to “$90 to $100 a barrel.”

"(Prices of) $60-$70 (per barrel) is an equitable price as it permits consumers to continue consuming and investors investing,” said Sonatrach CEO Abdelmoumen Ould Kaddour.

“When the barrel slumps to a price of $40, we have less money and we do not know what direction we take and where to go to get it and when the barrel jumps to $100 per barrel, we invest like crazy and we waste money,” he said.