White House, Saudi Arabia Pour Cold Water On Trump's "Saudi Deal"

On Saturday morning, president Trump triumphantly tweeted that following a phone call with the Saudi King, OPEC's largest producer had conceded and in defiance of the OPEC agreement reached just last week, had agreed to pump as much as 2 million barrels of oil extra in an attempt to lower prices:

“Just spoke to King Salman of Saudi Arabia and explained to him that, because of the turmoil & disfunction in Iran and Venezuela, I am asking that Saudi Arabia increase oil production, maybe up to 2,000,000 barrels, to make up the difference ... Prices to high! He has agreed!”

However, subsequent remarks by both the White House and Saudi Arabia via Reuters curbed Trump's enthusiasm. In a statement issued by the White House late on Saturday, it said that the White House said that the Saudi king had promised President Donald Trump that he can raise oil production if needed and the country has 2 million barrels per day of spare capacity.

"King Salman affirmed that the Kingdom maintains a two million barrel per day spare capacity, which it will prudently use if and when necessary to ensure market balance."

No guarantees, no promises, just a vague reference to what many believe is peak, or even beyond, Saudi oil production.

As a reminder, Trump's comments came just one week after Saudi Arabia along with the rest of OPEC nations including Russia had agreed on June 22 to boost production by a combined 700,000 to 1 million barrels a day, so any 2 million bpd-increase would be at least double market expectations, prompting a furious backlash from the likes of Iran. According to a Bloomberg report last week, Saudi Arabia would shoulder the bulk of this excess production, boosting output by a little under 1mmb/d to a record high 10.8mmb/d from the current 10mmb/d pace.

Separately, a source familiar with Saudi Arabia’s production plans told Reuters earlier in the week of the kingdom’s intention to increase output by 200,000 bpd this month.

Both a far cry from the 12 million barrels in Saudi production envisioned by Trump's tweet, which is urgently need to keep oil prices from surging at a time when the Trump administration is cracking down on Iran oil exports and demanding US allies cut their Iranian oil purchases to zero by November 4.

Meanwhile, Reuters reports that Saudi state media also downplayed Trump's rhetoric, and reported that "during the call the Saudi king and Trump emphasized the need to preserve oil market stability and efforts of oil-producing countries to compensate for any potential shortage."More importantly, the Saudi statement did not mention any intention by Saudi Arabia to raise production by 2 million bpd.

To be sure, there is speculation whether Saudi Arabia can even produce as much daily output as Trump suggested: while the kingdom has a maximum sustainable capacity of 12 million bpd, it has never tested that level of production.

We will be in uncharted territory. While Saudi Arabia has the capacity in theory, it takes time and money to bring these barrels online, up to one year,” said Amrita Sen of consultancy Energy Aspects.

Furthermore, if Saudi Arabia complies with Trump's demand it would not only provoke a harsh rebuke from the rest of OPEC which unlike Trump, is naturally far more interested in higher rather than oil prices, but could threaten the collapse of OPEC as nations defy the "agreement" reached between the US and Saudi Arabia.

As we reported yesterday, Iran’s Supreme Leader Ayatollah Ali Khamenei was furious, not only at Trump's behind the scenes negotiations but also of trying to turn Iranians against their government.

“They bring to bear economic pressure to separate the nation from the system ... but six U.S. presidents before him tried this and had to give up,” Khamenei was quoted as saying on Saturday by his website Khamenei.ir, referring to Trump.

Separately, Iran’s OPEC governor, Hossein Kazempour Ardebili, accused the United States and Saudi Arabia of trying to push up oil prices and said both countries are acting against the foundation of OPEC.

“If this happens, (it) means Trump is asking Saudi Arabia to walk (away) from OPEC,” he told Reuters.

“The market will go up to $100 I am sure as Saudi Arabia said they will plan an increase for July. ... This was managed between the two to rob the pocket of rest of the world,” he said.

Iran's anger is understandable: not only is the nation about to lose substantial market share to Saudi Arabia, but should Trump pull off another deal, the price of oil would drop, further deteriorating the already moribund economic situation in Iran whose currency has lost up to 40% of its value in just the past month, when Trump pulled out of the nuclear deal.

Iran's collapsing economy is already leading to sporadic anti-government protests according to media reports. And should Trump succeed in convincing Saudi Arabia to boost oil production to 12mmb/d, the fallout for Iran would be even more dire. Which, of course, is precisely the goal of Trump and while Saudi Arabia is hardly a friend of Iran, it will likely be concerned that by acting to punish Iran it could threaten the future existing of the oil cartel. Some energy reporters have already jokingly said that they are expecting an emergency OPEC meeting before September.

There is a potential drawback to Trump's strategy: should OPEC splinter (and even if it doesn't) it put much more strategic leverage in the hands of Vladimir Putin, who with Saudi Arabia pumping at capacity will suddenly become a marginal price setter for the world, especially with shale infrastructure sorely lacking amid a shortage of pipelines  to bring Permian oil to the market for the foreseeable future, and forcing deep discounts for Permian output.

Therefore, the big strategic problem emerging for Trump is that between Saudi Arabia and Russia pumping at near capacity, it puts the US at the mercy not only of Riyadh but also of, drumroll, Moscow which - in light of the imminent release of the Mueller report - is the last place the president would like to find himself. After all, should Russia decide to slash production indefinitely by one, two million barrels or more, it would bring stark memories of the 1973 oil embargo, and send the price of gas in the US soaring, potentially crushing Republican chances ahead of the midterms.

Meanwhile, as we noted yesterday, the bigger irony behind all this is that it is Trump's own crackdown against Iran, and his renewed sanctions against Tehran's oil production that is the main culprit for the recent spike in oil and gas prices (an outcome we previewed back in late 2016 in "Will Trump Send The Price Of Oil Soaring?").

And it is the realization that surging gas prices threaten to undo the positive impact of Trump's fiscal stimulus and tax cuts and cripple the US economy as consumers are forced to spend more money on gas and less on discretionary purchases, as explained previously, that has spooked the president forcing him to demand increasingly more "favors" from Saudi Arabia.

As a result, Brent topped $80 a barrel on May 17, the highest level since November 2014, while WTI has climbed even faster in recent days. It closed Friday at $79.44: $80 Brent has also emerged as a "red line" for Trump, around which the president starts lashing out at OPEC and Saudi Arabia on twitter and elsewhere.

Finally, if oil prices were to drop as Trump desires, it would also drag energy stocks lower - which have emerged as one of the very few resilient sectors propping up the market - and slam the market, at which point Trump may start demanding Saudi Arabia cut production once again....

Comments

BennyBoy Sun, 07/01/2018 - 09:49 Permalink

 

Trump tweeted "maybe up to 2,000,000 barrels"

The Arabian dictator would only have to increase output 1 barrel and Trump would be correct.

Another click baity headline from ZH.

Thank goodness I use free ad blockers

MuffDiver69 BennyBoy Sun, 07/01/2018 - 09:58 Permalink

Same old game...most if not all Americans see Trump trying to lower gas prices and using any leverage he has. These articles, and almost all of them, are written from the perspective of a young girl who was jilted by her puppy love failing apart. These authors probably read this and think they are really smart....OPEC is a cartel the same way the central banksters are and Trump is treating them as such. 

In reply to by BennyBoy

FBaggins MuffDiver69 Sun, 07/01/2018 - 10:03 Permalink

Trump's message to MBS decoded: “Just spoke to King Salman of Saudi Arabia and explained to him that, because of the turmoil & disfunction which we are engineering in Iran and Venezuela, I am asking that Saudi Arabia increase oil production, maybe up to 2,000,000 barrels, to make up the difference ... Unless we can really lower the price to ensure those rogue nations can't made a buck they will never go bankrupt. Prices are to high! He has agreed to screw them!”

In reply to by MuffDiver69

shortonoil FBaggins Sun, 07/01/2018 - 12:25 Permalink

The only way that the Saudi's could produce an additional 2mb/d would be to seriously over pump their fields. If they did they would be taking the chance of permanently damaging those fields; that is, reducing URR (ultimate recoverable resource). According to OPEC records 29 of the Saudi's 32 producing fields are in decline by 3% per year. The fact that Ghawar already has better than a 50% water cut, and 29 of its fields are already using tertiary extraction methods is proof of the statement above.

In other words MBS is bullshitting Donald, or Donald is bullshitting the American people, or Donald is thicker than a brick! Take your pick? This is all about driving capital from the emerging markets to the developed economies to keep the developed economies alive. It is part of the end game at the end of the oil age. Also commonly known as the big fish surviving by eating the little fish!
http://www.thehillsgroup.org/

In reply to by FBaggins

Harry Lightning FBaggins Sun, 07/01/2018 - 12:33 Permalink

I don't know who's trying to screw who or who has the capacity to pump what. What I do know is exactly at this time last year, the same people who are now wringing their hands about the rising price of oil were wringing the same hands about how oil prices were about to fall through the floor. 

So if that is any indication, hand wringing is an excellent indicator of price reversal in the oil market. On top of that, the Fed tightening of short term interest rates during the last year should just about now be starting to grip the US economy, and we soon should see some type of reduction in economic activity. Which would result in a lower demand for oil just as the oil producers have amped up to maximum production. 

Its probably time to sell rather than buy oil, that's what it all says to me., There obviously is some kind of secret deal between the US and the Saudis which will be kept secret as long as they can keep Trump's fingers away from his Twitter app. My guess is that the next move will be for the US to release a million barrels a day from the strategic reserve for the next 90 days, which also will have a depressive effect on oil prices. When combined with the million per day increase OPEC agreed to last week, that would get production up by the 2 million barrels per day Trump tweeted about.

 

In reply to by FBaggins

Son of Captain Nemo Sun, 07/01/2018 - 09:50 Permalink

This (https://southfront.org/us-vessel-carrying-chemicals-enters-persian-gulf/) is why Bolton will be doing all the talking in Helsinki!...

Along with Israel at the "contact line" (https://southfront.org/israeli-forces-deploy-additional-battle-tanks-ar…) of their own choosing and negotiations breaking down with the Anglo-Zionist backed terrorists (https://southfront.org/russia-and-free-syrian-army-failed-to-reach-agre…) this is just more proof that the House of Saud's card trick is about to go bust!

 

Son of Captain Nemo CatInTheHat Sun, 07/01/2018 - 10:43 Permalink

Why would "Orange Lesion" be doing any talking when the "six-sided sta"r is up his ass to their elbows at this point in firm control?...

Counting the ways!...

First 4 months in office launches an unsanctioned and Illegal 68 cruise missile attack on Syria while threatening his guest in Mar a Lago who also happens to hold the largest number of U.S. Ts of any Nation on the planet... Then the illegal misadventures in Yemen... Then another missile attack a year later in Syria again (that failed like the first one) based on false pretext(s)... Then backing Israel that the capital is now Jerusalem which of course was to provoke finishing off the rest of the indigenous population in the largest open air prison in the World that has murdered 400 Palestinians and injured 20,000 others and counting... And lest I leave out "Fire and Fury" on the Korean Peninsula that had the opposite effect on the "administration's" intentions...

With these moves by 1 President in less then 2 years in office after the legacy(s) of Obama, Bush(s), Clinton before him... Might as well douse yourself with petrol and "light a match"!

Cause lets face it?...  We're a Nation that is very good at being hated by everyone else given what we do EVERYWHERE OCONUS with $USD (carrot) and military (stick) which are the ONLY 2 things that's made our friends since WWII... But now like "all things great that must pass" being $200 trillion in unfunded liability "trouble"!

Say "WHEN"!!!

In reply to by CatInTheHat

Son of Captain Nemo the artist Sun, 07/01/2018 - 11:52 Permalink

Get all the George Soros paid ANTIFA "missionaries" herded into Washington D.C. by the war veteran militias that have "copped out" and have the biggest fight of our lives on the "hallowed" grounds that made ALL OF IT possible?!!!...

Just a suggestion at this point...

Given that 96 million Americans are out of the work force and refuse to do anything about making that kind of a display happen, we should know at this point with high degree of probability that another "false flag" (https://southfront.org/us-vessel-carrying-chemicals-enters-persian-gulf/) will draw the American lemming flies to the next "pile of shit" du jour to feast on by the money printers of course who have nothing else to offer at this juncture!!!  But that's okay by the rest of U.S. of course since selling out to this one (https://www.ae911truth.org/) 17 years ago!...

And just in time for a peace negotiations in Helsinki?... Where have we seen this happen before???!!!....

In reply to by the artist

boattrash Quantify Sun, 07/01/2018 - 10:15 Permalink

" I have no issue with the current price of petrol"

Nor do I, but what I find confusing, why didn't Trump call on American Producers to ramp up production to meet the shortfall?

I'm no expert on this shit, maybe he's just trying to "stir the pot/cause in-fighting" within OPEC, but ramping up U.S. production seems like it would be more in line with the "America First" and MAGA themes he keeps talking about.

It could also be an attempt to "call their bluff" as many people believe S.A. is bullshitting the world on the depths of their oil reserves.

Option 4.  Maybe he's "throwing them a bone" (SA) for finally allowing women to drive...Who knows?

In reply to by Quantify

Canadian Gal boattrash Sun, 07/01/2018 - 19:58 Permalink

US producers can't ramp up their oil because your pipelines are full in some of the areas you frack.  In other areas, ramping up takes time and he needs to stop rising oil prices TODAY as that bit of cash he handed out to you all that he wanted you to buy American goods with is being spent instead on rising energy and fuel costs........it's become urgent as he's just clued in that Canadians have been boycotting US products and companies for the past several weeks, whether they were on the tariff list or not, and tariffs only went into force today.  Our stores, out of consumer demand, are now carrying more Canadian and non-US produce, less US, and the US produce we do get is barely moving now.  Canned goods, same story.  Traffic drastically down at stores like Costco, Walmart, Home Depot, Lowes, Starbucks, Tim Hortons, McDonalds, Burger King, etc....people are patronizing Cnd companies now.  I've seen where other countries are starting boycotts as well.  Companies like Kraft-Heinz have seen sales to Canada dropping for weeks now and have talked about future job losses with just one 10% tarriff on one thing, ketchup.  I've read where one maple syrup company is contemplating handing over their current syrup contract to a Canadian company to fill as they'll go in the hole if they do it themselves.  US companies now threatening to move some production to countries that have placed tariffs on them.  Companies that were planning to invest in the US, putting it on hold.  Everyone could see this coming except Trump, hence his PANIC now to make oil prices drop.  Desperation at it's finest as GDP falters because while the US has trade wars with lots of countries, those countries only have a trade war with one country, the US.  So we all buy more goods from each other and cut the US out of the equation, and folks, I've done it, saved money in the process, and it's not been painful at ALL.  Trump's great "plan" of trying to destroy the economies of allies to better the US will likely go down as one of the dumber ones in history.  As it blows up in his face as more discussion of job losses happens, as production of everyday goods in your factories fall, profits fall, jobs are lost, stock prices fall, it'll be fun to see what woe-is-me story he strings together next for you all, as for sure, he won't take any responsibility for any permanent damage he causes to your businesses.  He'll find a way to spin it as someone else's fault, some other country's fault just like he doesn't publicly brag about how many businesses he's bankrupted.  Maybe he'll make it the US consumer's fault this time for not spending enough to prop up your economy while he plays his games.  Who knows.  I just really honestly thought that little quip of his, "trade wars are easy to win" would take longer to come back and bite him in the ass.

In reply to by boattrash

Ms No Sun, 07/01/2018 - 10:06 Permalink

OPEC will collapse. These fuckers are all insane and full of hubris. 

Also I noticed that Oppenheimer Ranch clowned Tyler.  At about 17:20.  "This is not about aliens Tyler."

Alexander De Large Ms No Sun, 07/01/2018 - 10:27 Permalink

OPEC is not insane and full of hubris.  

Considering the unshakable fact that these guys are sitting on a sea of the most important natural resource in the world next to water and air, it's a wonder they don't require leaders of Western nations to cut off a pinkie before meeting them like the Yakuza.

Especially seeing how the West meddles with and sabotages OPEC nations.  They should be A LOT MORE vicious than they currently are.  America is a gaping asshole to everyone and all we have is corn and shitty fucking shale to offer the world.

In reply to by Ms No

Ms No WTFUD Sun, 07/01/2018 - 11:32 Permalink

Every founding member but Iran is a vassal.  Of course they intend on Iran being one too, but they aren't going to be able to control Iran.  They wont maintain control of Iraq, etc.  Then you have Qatar, UAE, Venezuela, Libya, Nigeria, etc. I mean, come on...

These vassals will not stay vassal forever that is obviously part of the reason it will collapse.  The world will not revolve around Israeli vassal forever and Saudi will likely be the first casualty of any war or major revolt.  They better enjoy it while it lasts.  They embody hubris.

In reply to by WTFUD

Alexander De Large Sun, 07/01/2018 - 10:20 Permalink

Told you Donuld is an unlikeable asshole lol.

Lol@Calling up a guy to manufacture more Spiderman towels because the price of Spiderman towels is too high and your kids love Spiderman towels. 

I repeat, Don is an asshole.  He knows his supports are dumb enraged hillbilly racist xenophobic retards, so he plays the classic role of White Guy Bossing Mud People Rulers Around.

He knows his moronic public have done nothing but manufacture handicapped toilet seats in Tupelo, Mississippi their whole lives.  These pigfuckers can't see thru a haze of Pabst that it is patently ridiculous for the Saudis, who are down to whipping their brothercousins' asses in hotel basements and letting women drive to keep from being violently overthrown, to then double an oil production boost to make the guy who hosted The Apprentice feel better about himself.

All these countries are following the meaningless gay appeasement playbook. Lol@All these nations rolling out the red carpet for Don just to jerk him off and go do what they want anyway.

MarcusAurelius Sun, 07/01/2018 - 10:34 Permalink

Wooo....hoooo.... and of course that will cure the "price fixing" (which is illegal by the way) that goes on in every country too won't it? Like say now....for example. Price was 1.24 a litre here in the great white north last week and now because its the long weekend its 1.33 on average. Now of course that is not in the key urban areas where it is more like 1.38 to 1.40 a litre. Same price basically when oil was 140.00 a barrel. Of course it will cure the tankers sitting offshore and all the other scams that take place in this industry daily. Rape does not do justice what these fuckers do to us daily. Oh sure there are all the excuses around good jobs, research and all that other economical BS but bottom line is fuckin' greed. Period! At yours and my cost. A complete fucking of this industry can't happen too soon. 

WTFUD Sun, 07/01/2018 - 10:44 Permalink

Brilliant Idea if it comes off, why didn't i think of this? sarc

Whatever, the US has lost control of a unit of moderate FSA who joined ISIS rather than accept handing over their weapons to SAA. Looks all over bar the shouting for Uncle Sham as the SDF (mostly Kurds ) have seen the light and 80% of the Job's done, taking Daraa back under Government control.

I love a good Plan until it gets ripped-up and shit upon from a great height, just after being punched in the face by your wife on your honeymoon. Start as you mean to go on!

WILBUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUR! 

Alexander De Large Sun, 07/01/2018 - 10:56 Permalink

Whole thing is stupid.  Iran needs to ask:

What the fuck is the point of forming an oil cartel if one of your customers can just call one of your guys up and ask him to boost production to lower prices?

That is not how a fucking cartel works.

Shit, I remember the Colombians killed a Bolivian supplier who got tricked by the DEA pretending to want to backdoor them.

What kind of fucking cartel just sits around letting their customers dick with them?

Number 9 Sun, 07/01/2018 - 11:29 Permalink

history proves if (((they))) want it they take it..

with 100% control of the world's most powerful military..

well I am sure you can connect the dots from here