Saudi Arabia has been signaling for weeks now and will do whatever it takes to rebalance the oil market, cutting off exports and pumping well below its quota under the OPEC + agreement – despite the persistence of the US shale.
However, while neither the Saudis nor OPEC officially admit that they want higher oil prices or a specific oil price, the combined efforts of the OPEC / non-OPEC group to withstand 1.2 million bpd of supply are targeting a more tight – and higher oil prices.
Even though higher oil prices are actually helping American shale producers to pump oil to record highs, Saudi Arabia's top producer and de facto leader is supposed to prefer higher oil prices instead of getting his share of the market .
The Saudis are seeking at least $ 70 a barrel Brent Crude, because the Kingdom budget needs these higher prices, industry sources familiar with Saudi Arabia's oil policies told Reuters. And they may need even more than that.
According to International Monetary Fund (IMF) estimates, Saudis need much higher oil prices for a budget balance in 2019 – $ 80-85 per barrel, said Jihad Azour, director of the Middle East and Central Asia Department the IMF. Reuters last month.
Oil at $ 80, however, will surely draw harsh criticism from US President Donald Trump, whose "oil price cap" seems to be Brent above $ 65. The latest tweet directed at OPEC at the end of February urged the cartel to "catch light" when oil prices were more or less where they are now – in Brent, at around $ 66 a barrel. Related: What is Norway's Decision to Hand over Means for US Shale?
Oil at $ 80 would also be the beginning of the destruction of demand, at a time when economists and markets are already worried about slowing economic growth in China and other major economies, as well as the unresolved US-China trade dispute.
So while the Saudis are probably aware that they can not afford oil, the target, according to Reuters sources, is still above current oil prices.
The last time the Brent Crude traded at $ 70 or above was in early November last year when prices fell from levels of $ 80 or more since early October.
At that time, in the run-up to the return of US sanctions to Iranian oil, when Washington promised zero Iranian exports, Saudi Arabia, its close allies to Gulf Arabs and Russia, opened the taps to pump more oil to compensate for what was happening. A serious loss of Iranian barrels is expected.
But then the US granted waivers to eight major Iranian clients, sending prices sharply down, exacerbated by fears of a slowdown in global economic growth.
With US resignations expiring in early May, Saudi Arabia and OPEC appear to be shifting oil policy more cautiously, this time to avoid high volatility and a miscalculation in supply.
Last week, a panel of OPEC + allies said it recommended that partners cancel an extraordinary meeting scheduled for mid-April, leaving the decision to extend the cuts to a meeting in late June.
The panel's motivation to cancel the April meeting is "taking into account that the fundamentals of the market are unlikely to change materially in the next two months." Related: Schlumberger will not adopt new oilfield management projects
Fundamentals of the market may not change substantially in two months, but the US decision on Iranian resignations will come before OPEC meets in late June to decide what to do next – reverse cuts, extend cuts with modified quotas or reductions.
Saudi Arabia, which received President Trump's support when the world avoided the killing of Jamal Khashoggi, may once again be subjected to pressure from Trump to "relax" and relax the cuts, especially if oil prices reach $ 70 a barrel or higher.
However, the Saudis may not move this time, according to an OPEC source who told Reuters.
"They (the Saudis) care about Trump, but they can not do what he says every time," OPEC's source told Reuters last week.
Saudi Arabia's fiscal position and budget needs may overcome concerns about losing market share or pressure from President Trump to keep oil prices low.
By Tsvetana Paraskova for Oilprice.com
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