Oil supply and demand not whole story
Trump’s pressure on Saudis makes market ‘nervous’
Crude declined Monday after President Donald Trump put pressure on Saudi Arabia to ramp up oil output, with traders worrying about how it could affect spare capacity ahead.
Following last week’s rally, futures fell Monday in both London and New York after Trump tweeted over the weekend that Saudi King Salman bin Abdulaziz had agreed to boost production to the kingdom’s maximum capacity in a push designed to overcome supply losses from Canada to Libya.
“The commodity has gotten incredibly politicized now, beyond the supply-demand dynamic,” said John Kilduff, a partner at New York-based hedge fund Again Capital. Trump’s pressure on Saudi Arabia “is making the market nervous that it won’t have any spare capacity, and/or the Saudis will do some harm potentially to their fields and rate of production,” he said.
The U.S. benchmark crude rallied more than 10 percent in June amid tightening inventory levels and global supply outages that increased the demand for domestic production. That’s despite OPEC’s pledge to boost supply levels, with Saudi Arabia’s crude exports already surging to a 15-month high in June. West Texas Intermediate crude for August delivery slid 21 cents to settle at $73.94 a barrel on the New York Mercantile Exchange.
The premium at which frontmonth WTI futures traded to the September contract widened to $2.32 on Monday, the biggest premium for the front-month spread since 2014.
Brent for September fell $1.93 to end the session at $77.30 on the London-based ICE Futures Europe exchange. The global benchmark traded at a $5.68 premium to WTI for September.
After Trump’s tweet, the White House said Saturday in a statement that the Saudi king affirmed that Saudi Arabia has 2 million barrels a day of spare capacity, “which it will prudently use if and when necessary to ensure market balance and stability, and in coordination with its producer partners, to respond to any eventuality.”
The White House statement aligned with one by the staterun Saudi Press Agency saying that the king and Trump, in a call Saturday, discussed efforts by the oil-producing countries to compensate for potential shortages in oil supply.
Iranian Oil Minister Bijan Namdar Zanganeh said any production increase above the limits agreed to by OPEC would “breach” the deal, according to a letter he sent to OPEC President Suhail Al Mazrouei.