Oil prices climb on tightening USA market

Daniel Fowler
July 7, 2018

President Donald Trump used Twitter on Wednesday (July 4) to express his frustration with high U.S. Saudi Arabia agrees with Trump on the importance of keeping prices down but has not committed to increasing output sufficiently.

High oil prices make fracking more economically viable for the USA, now the third largest producer of oil worldwide.

"[It] would be a kind of self-harm for the United States as it would lead to dramatic price hikes in the oil market", Ardebili said, adding that "American consumers" will likely pay higher prices at the pump due to "Trump's unilateralism". "This must be a two-way street", he wrote. Oil prices will not collapse and they will sell more oil.

"With contentious midterm USA elections looming, the President continues to strong-arm Saudi Arabia to increase oil supplies which, at least for now, is containing price action below WTI $75 per barrel", said Stephen Innes, Head of Trading for Asia/Pacific at futures brokerage OANDA.

Every extra dollar on the price of a barrel of crude costs US consumers roughly $3 billion a year, assuming refining margins and fuel taxes remain constant, and ignoring gasoline consumption by businesses and the like.

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LONDON, July 5 (Reuters) - The United States and Saudi Arabia appear to have reached an understanding: Washington will reduce or eliminate Iran's oil export revenues and in return Riyadh will guarantee oil supplies and stabilise prices.

Thanks largely to Venezuela's economic implosion and supply disruptions in Libya, OPEC+ overshot its negative production adjustment by 50 percent, taking 2.8 million barrels off the market.

Saudi Arabia and Russian Federation have the lowest production costs and stand as the ones to gain more from a moderate production increase. The group recently made plans to increase production in the coming months, but questions linger about whether it will happen. Speaking Thursday, Hossein Kazempour Ardebili, the Iranian governor to OPEC, said the US president was ill-informed on OPEC policies. "Please stop it", Kazempour said. "You impose sanctions on major producers, founders of OPEC, and yet you are asking them to reduce prices?!"

Trump in an earlier tweet and in an interview on Fox News last Sunday said he wanted oil exporters to provide an additional 2 million barrels a day of production. "Pls stop it, otherwise it will go even higher!" the Iranian official added. According to the Financial Times, traders and analysts have said that adding the full two million barrels per day 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. Further, rising trade war concerns in U.S. and China too dragged oil prices down, hitting a low of 76.60 levels as of 15:58 hours IST.

The agreed increase in production is a good political move from Saudi Arabia because it shows that it does not aim to harm the world economy or its customers, only to return to a stabilized oil market.

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