US President Donald Trump tweeted about Opec on Wednesday amid Independence Day celebrations, to repeat a threat that lower oil prices should be the quid pro quo for the security ties some members of the group enjoy with the US.
Mr Trump has been pushing Saudi Arabia, Opec’s de facto leader, to raise oil output by as much as 2m barrels a day, partly as the US is reimposing sanctions on its chief regional rival Iran. That is expected to cut Iran’s oil exports later this year.
Saudi Arabia has indicated it will raise oil output by approximately 1m b/d from the level it produced in May, which should take its output to the highest level on record later this summer.
It has also said it has spare capacity to help meet any additional demand in the market, but has stopped short of saying it will immediately start adding the full 2m b/d.
Traders and analysts say adding the full 2m b/d requested by Trump would stretch the kingdom to its limit and leave global spare capacity close to zero, with little buffer should there be further supply outages.
Oil prices have been supported above $75 a barrel despite Saudi Arabia saying it will raise output due, in part, to severe supply outages in Venezuela and Libya.
The US has also said it wants to push Iran’s oil exports — which stand around 2.5m b/d — close to zero, taking a more aggressive stance than first anticipated by the market.
Traders fear that if the US is even halfway successful in that aim that, combined with other supply outages, the market could be left short even if Saudi Arabia did decide to push output close to its maximum levels.
The kingdom has said it could produce 12m b/d if necessary but it would require at least six months, with additional drilling and investment required.
Saudi Arabia has pushed the US to take a tough line with Iran, including supporting its withdrawal from the nuclear deal.
Other Opec members with spare capacity, including the UAE, are also moving to raise output while Russia — the largest exporter outside the group that has struck a close oil-based alliance with Riyadh — is also raising output.
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