The U.S. 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 U.S. 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 U.S. lawmakers have habitually
criticized 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 U.S. 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 U.S. 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.
U.S. 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 U.S. 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.
Consumer Anxiety
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.S. 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.
--With assistance from Javier Blas.
©2018 Bloomberg L.P.
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