Saudi Arabia in the short term for oil, fears an additional supply to the United States next year

DUBAI (Reuters) – Saudi Arabia will quietly add oil to the market over the next few months to offset the drop in Iranian output, but fears that it will have to limit its output next year to balance the price. global supply and demand. more gross.

The United Kingdom, OPEC's biggest producer, was put under renewed pressure last week by US President Donald Trump to cool oil prices ahead of a meeting in Algiers between several OPEC ministers and allies, whose Russia.

Two sources close to OPEC policy said that Saudi Arabia and other producers had discussed a production increase of about 500,000 barrels per day (bpd) between the Organization of Exporting Countries of oil and non-allied OPEC countries.

But Riyad decided not to insist on an official increase now that it realized that it would not guarantee the agreement of all the producers present during the negotiations, some of which lacked production capacity and could not increase quickly production.

Such an initiative would have unstable relations between the producers, said the sources, the Saudis wanting to maintain unity within the OPEC + alliance in case Riyadh wants to change course in the future and seek their collaboration to reduce the production.

"There are only two months left until the end of the year, so why create tensions between Saudi Arabia, Iran and Russia," said a source close to discussions in Algiers.

Saudi Energy Minister Khalid al-Falih said on Sunday that he feared that oil production gains, mainly from the United States, will exceed the expected increase in oil demand and result in a global inventory.

"Next year, there are more demand-side threats than supply-side threats," said the second source, who is also aware of the negotiations.

LCOc1 oil prices reached their highest level since 2014 above $ 80 per barrel this week, fearing a sharp drop in Iranian oil exports due to new US sanctions that will worsen the oil deficit and production declines in the US. Venezuela.

GLUT FEARS?

However, OPEC's latest report this weekend predicts that its US-led non-OPEC competitors will increase production by 2.4 million bpd in 2019 as global oil demand is expected to increase only 1.5 million bpd.

This, according to Saudi thought, could create a large surplus of crude oil next year, especially if a stronger dollar and weaker emerging economies reduce global oil demand.

The big unknown, however, is how far Iran will be forced to cut production next year, as customers in Europe and Asia leave their oil in response to US sanctions.

OPEC reports indicate that Iran's supply has already fallen by around 300,000 barrels a day in recent weeks, even though Iran insists it has remained stable at around 3.8 million barrels a day.

Sources close to Saudi production plans said the Kingdom would increase production by 200,000 to 300,000 bpd in September and October, in addition to the 10.4 million bpd produced in August to meet additional customer demand , mainly in Asia.

CROSSROADS OF DECEMBER

Saudi Arabia, the world's largest oil exporter, is the only major producer with sufficient capacity to rapidly increase production, balancing supply and demand.

The kingdom effectively plays the role of central banker of the oil market, its thinking and action in supply being closely monitored by traders.

Riyadh is collecting data and has not decided on its action plan for next year.

If the Iranian offer proves harder than expected and as prices rise again, an increase in formal production of OPEC and allies could still be possible next year and will be discussed at Meeting on December 6 and 7, indicated both sources.

The increase in volumes and lead times will depend on producers' compliance with their current production agreement in the coming months and the market outlook for 2019, said one source.

"The reality is that no one (outside Saudi Arabia) can increase production in the coming weeks. But many can do it in about 12 months, "said one of the sources.