It turns out the reason is to be found in an article published moments ago by Al Jazeera, according to which the Saudis “have agreed to US demands to pump more oil”, and which quoted the official Saudi Press Agency that Saudi Arabia’s cabinet on Tuesday “endorsed the kindgdom’s readiness to pump more oil to maintain market balance and stability.”
“The kingdom is prepared to utilise its spare production capacity when necessary to deal with any future changes in the levels of supply and demand,” a cabinet statement said, following a meeting chaired by King Salman.
Some more details from the Al Jazeera report:
US President Donald Trump on Saturday said Saudi Arabia’s King Salman had agreed to his request to increase oil output “maybe up to” two million barrels. Trump said the agreement was reached after a phone call with the Saudi King about oil production but mentioned no specifics.
Both leaders also discussed “efforts by the oil-producing countries to compensate for any potential shortage in supplies,” SPA reported.
Trump’s claim comes after the Organization of the Petroleum Exporting Countries (OPEC), a grouping of oil-producing states that includes Saudi Arabia, already agreed to ramp up production by a million barrels a day at a meeting earlier this month.
In addition to pressing Saudi Arabia to pump as much as 2mmb/d more to an unprecedented 12mmb/d, an amount many doubt the Saudi can maintain for an extended period of time – think Tesla making Model 3s – the Trump administration has also been pushing countries to cut all imports of Iranian oil from November when the US re-imposes sanctions against Tehran, after Trump withdrew from a 2015 nuclear deal agreed between Iran and six major powers.
If the Saudis are indeed prepared to cave to Trump, it creates an existential threat to OPEC which may see Iran and other members quit immediately, if Riyadh has made a unilateral decision to pump more. 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.
As this point it is looking increasingly more likely that an emergency OPEC meeting is coming in the not too distant future.
Whether accurate or not, the Al Jazeera report has sent oil sliding, although it may be just the opportunity dip-buyers have been waiting for.
The United States Oil Fund LP ETF (USO) closed at $14.92 on Tuesday, down $-0.04 (-0.27%). Year-to-date, USO has gained 24.23%, versus a 1.92% rise in the benchmark S&P 500 index during the same period.
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