Hooked on trump: why the Saudis betrayed OPEC

© RIA Novosti / Alexei Vitvitskiy fotobanka in the building of OPEC in ViennaHooked on trump: why the Saudis betrayed OPEC© RIA Novosti / Alexei Vitvitskiy the image Bank

Prices for Brent crude fell below $ 60 per barrel. The main reason for the collapse of quotations, a record increase in production in Saudi Arabia in November, when the Kingdom greatly exceeded its quota within OPEC+. Why Riyadh is sacrificing his own interests for the USA and that will solve the cartel members at the meeting next Thursday at RIA Novosti.

They flooded the market

By the end of November oil production in Saudi Arabia reached a record high of 11.2 million barrels per day. The quota established by OPEC agreement+, — 10.5 million barrels. At the same time with enhanced field development Riyadh actively sells the oil from its reserves.

All this is happening against the backdrop of unprecedented volumes of oil production in the United States. Since the beginning of the year, it increased production by two million barrels per day and today produce a record 11.6 million daily.

As a result, according to investment Bank JPMorgan, world production now exceeds demand by 1.2 million barrels a day. Experts remind: the same gap between supply and demand in 2015, when oil prices collapsed below $ 30.

The most interesting thing about this situation is the position of Saudi Arabia. The Kingdom is experiencing great financial difficulties, and in early November, energy Minister Khalid al-falih acknowledged that for Riyadh, the optimal cost of black gold — $ 70 per barrel.

Analysts of the International monetary Fund consider this estimate far too low. According to them, the Kingdom budget will be deficit-free only at 88 dollars per barrel. Whatever it was, Riyadh required the increase of oil quotations for the production of the need to reduce, not increase. Agree with the Saudis.

«The market situation points to the need to reduce supply by a million barrels a day compared with October,» said al-falih November 12, after an extraordinary meeting of the monitoring Committee of OPEC+.

He even promised that in December Saudi Arabia will reduce production by 500 thousand «barrels» a day, to ensure recovery of prices. However, the actions of Riyadh, raised serious doubts about the sincerity of such statements.

The fact that now the Saudis have more to listen not to the partners at the OPEC+, and Donald Trump.

The favor

The American President has repeatedly appealed to OPEC to increase production and reduce prices. In particular, before the September meeting of the monitoring Committee of OPEC+ in Algeria, trump urged the participants to stop the rise in price of oil, emphasizing the fact that the United States ensure the safety of member countries of the cartel.

«We are defending the Middle East, their safety depends on us, and yet they continue to raise the price of oil higher and higher! We’ll keep that in mind. Monopoly OPEC needs to cut prices now!» he wrote on Twitter.

Until recently, the cartel members happily ignored the demands and threats from Washington. In particular, the participants in Algeria, contrary to the requirement of trump, has announced its intention to cut oil production next year.

The situation changed dramatically after the murder of columnist of the Washington Post Jamal Casucci in the Saudi Consulate in Istanbul in early October. Turkish and American intelligence services officially announced that the murder may be involved in the top leadership of Saudi Arabia and personally to the crown Prince Mohammed bin Salman.

However, trump has publicly questioned this and confirmed that Washington will remain a partner in Riyadh.

«If we sever relations with Saudi Arabia, oil prices will skyrocket — up to $ 150 per barrel. Russia would be very glad. I keep prices down, Saudi Arabia helps me to keep them. I’m not going to destroy the world economy and the economy of our country, making reckless actions against Saudi Arabia,» explained the head of the White house on November 20.

So trump has spared the Kingdom from the threat of sanctions, the necessity of which many say the U.S. Congress. For Riyadh very grateful to him.

Moreover, the Saudis want trump won the presidential election of 2020, and is ready to help him. In particular, to do everything possible to reduce oil prices.

Invisible decrease

The main issue of concern today all analysts — how far Riyadh is willing to go in sacrifice, risking the collapse of their own economy.

At the November talks in Abu Dhabi, OPEC discussed the possibility again to cut production by 1.4 million barrels a day compared with October levels. Now those plans are under threat.

According to The Wall Street Journal, Saudi Arabia is trying to find some intermediate variant of taking into account the intention of the cartel to limit excess supply and desire trump to prevent the rise in price of oil. It is proposed to declare at a meeting of OPEC+ next Thursday that production quotas set in 2016, remain.

Formally, this will not be another production cuts, but in fact the supply of oil will decrease because now the members of the cartel in total exceed quotas by about a million barrels a day.

As pointed out by The Wall Street Journal, this option will satisfy both the producers and trump.

Analysts at Bank Societe Generale has estimated that if OPEC+ will cut production by a million barrels a day, will have a chance to return the price of Brent in the range $ 70-80.

If the cartel members do not want to return to compliance with the initial agreements, the quotes of black gold could fall another five to ten dollars.