The decision by Washington not to extend waivers on Iranian crude oil imports may likely sustain the oil price rally for a while until the Organisation of the Petroleum Exporting Countries (OPEC) decides new production cuts next month.
Already, Kuwait’s oil minister, Khaled Al Fadhel, yesterday, said the U.S. decision will be a key topic of discussion when OPEC members meet in Jeddah, Saudi Arabia, in May, and any decision on output will be made only after reviewing prices.
Brent Crude closed Tuesday at $74.43 per barrel, OPEC basket $72.44, while Nigeria’s Bonny Light was $72.43.
Although, budget benchmark was kept at $60 per barrel, there are concern that global tensions will continue to affect prices, even as Nigeria struggles to ramp up production to the budgetary benchmark.
Civil societies and the organised private sector have expressed concern on government’s ability to finance the 2019 budget due to oil production assumptions and rising loan profile.
“I am sure the topic of American sanctions will be a hot topic to be discussed at the Joint Ministerial Monitoring Committee (JMMC) meeting in Jeddah in May,” Fadhel told reporters during a visit in Tokyo.
“A decision will be made only after the review of (oil) prices and how that influences the prices,” he added when asked to comment on whether OPEC will review its output policy after the U.S. announcement on Monday, to end all waivers from Iran oil sanctions due to expire May
“Kuwait as a country, a member in OPEC and a founder in OPEC, we always seek stabilisation of [oil] prices across the world,” for the benefit of oil producers and consumers, he added.
Asked whether Kuwait is ready to increase its oil production, Fadhel said: “As a minister of oil, we have not discussed this issue as of now,” adding that the producing country will follow OPEC’s production policy.
Kuwait produces around 2.7 million b/d of oil in accordance with the cuts decided by JMMC, he added. He declined to comment on Kuwait’s spare production capacity Tuesday.
The JMMC, which oversees the OPEC/non-OPEC deal, is set to meet next on May 19 in Jeddah, after the cancellation of an extraordinary meeting scheduled for April 17-18, at which OPEC had originally hoped to announce any cut extension.
OPEC is set to meet on June 25 in Vienna, Austria, to discuss extending the agreement to cut output by 1.2 million b/d beyond the end of June, followed by a meeting the next day with the non-OPEC signatories. The current agreement exempts Venezuela,
Iran and Libya from output reductions.
The White House’s announcement Monday that it will end Iran oil sanctions waivers when they expire May 2, have drawn an immediate threat from Iran to close the Strait of Hormuz.
Roughly one-third of the world’s oil and gas traded by sea passes through the strait every day, and Saudi Arabia, Iraq, Iran, Kuwait, and the UAE all depend on it to move crude and products on to the world market, primarily to Asian buyers.
Analysts also noted that the decision was made amid ongoing geopolitical uncertainties in other regions that are threatening crude oil supplies.
“The current waivers expire on May 2, and the decision is likely to worsen the ongoing supply woes being felt with Venezuelan sanctions, the OPEC supply cut, and intensifying conflict in Libya,” analysts at ANZ Research wrote in a report Tuesday.
“That said, the administration is confident that any shortfall can be made up from Saudi Arabia, UAE, and other major producers,” it added.
Saudi energy minister, Khalid al-Falih, said Monday that the country would “coordinate with fellow oil producers to ensure adequate supplies are available to consumers, while ensuring the global oil market does not go out of balance,” according to a statement carried by state-run newswire SPA.
Meanwhile, analysts said that the U.S. is likely to delay implementation on secondary sanctions on Venezuelan oil exports, until Saudi Arabia and the U.S. significantly increase their crude export following the expiration of Iranian sanction waiver.
The secondary sanctions on Venezuela, which would explicitly prohibit trade between PDVSA and non-U.S. companies, have “become less likely, at least for a while,” analysts with ClearView Energy Partners said Monday.