Saudi Arabia has pledged to boost oil output if needed, as the Trump administration starts banning all Iran oil exports on Thursday. But behind the scenes, according to the Wall Street Journal, Riyadh and Washington face a potentially weekslong showdown over the number of extra barrels the kingdom would supply to global markets to keep crude prices stable.
The U.S. is pushing to restart production in a field shared by the kingdom and Kuwait that could unlock half a million barrels a day, people familiar with the matter told the Journal.
But at the same time, Saudi Arabia, in need of higher oil prices to keep its state budget balanced, is lobbying within the Organization of the Petroleum Exporting Countries to change the way the cartel calculates whether the market is adequately supplied as a way to show the U.S. that no more oil is needed, people familiar with the matter said, the Journal added.
The Trump administration on April 22 said it would end the exemptions it granted to Iran’s oil buyers, aiming to bring its exports to zero.
The move comes after oil prices posted their strongest first quarter in decades, rising about 30%. Oil prices hit a six-month high last week as the U.S. manages an embargo on Venezuelan oil shipments and a rebel general’s offensive in Libya risks jeopardizing that country’s production.
Saudi Arabia is set to debate with other producers how much extra oil it should pump at a technical meeting in its economic capital Jeddah on May 19.
Seeking new oil sources to avoid tensions in the market, State Department officials have prodded Saudi Arabia and Kuwait to resolve a dispute with Saudi Arabia over the jointly held oil field in the so-called Partitioned Neutral Zone, an area that straddles onshore and offshore fields to the north of the Persian Gulf, as a way to boost global supplies.
Three years ago, the countries shut the field, citing disputes about land and environmental permits. The return of production there would help ease oil prices, as it would add to existing production potential rather than drawing down on spare capacity, the Journal explains.
The Journal adds that at stake is whether Saudi Arabia will act on its late-April commitment to boost output when needed. In a tweet on Friday, President Trump said he “spoke to Saudi Arabia and others about increasing oil flow. All are in agreement.” Saudi Arabia is set to increase output, a person familiar with its policies said, but has made no promises specifying how much extra oil it could bring to markets and when.