Saudi Arabia: End of Iran oil waivers and OPEC+ output cuts push up oil prices
Oil prices continued to climb in recent weeks on supply side concerns following the U.S. decision to end Iranian oil waivers and the strong compliance to the oil deal by OPEC and key non-OPEC members. On 1 May, the OPEC oil basket traded at USD 72.0 per barrel, a 5.4% increase from the same day in March. While the price was up 39.7% from the start of the year, it was only 2.0% higher than on the same day in 2018.
Oil prices jumped in recent weeks amid rumors that the White House would end exemptions for eight nations, including China, India and Turkey, to buy Iranian oil. However, although the 180-day waivers formally expired on 1 May, it is not yet clear how the United States will enforce the ban. China and Turkey, for example, have already stated that they wish to continue buying Iranian oil, with Turkey expressing concern that it will take time to find alternative suppliers. Moreover, although President Trump expects that the oil production gap left by Iran will be filled by increased production among OPEC countries and the United States, a sharp decline in Iranian oil production could further reduce global supply and thus push up prices. After all, Iran is still pumping a sizeable amount of oil, amounting to 2.70 million barrels per day (mbpd) in March.
Meanwhile, OPEC countries’ compliance with the oil cut deal remains high. Combined crude output, for example, fell by around 1.6 million barrels per day between December and March and by 534,000 barrels per day month-on-month to 30.02 mbpd in March. The reading mainly reflected much lower output in Venezuela due to chronic underinvestment and U.S. sanctions on state-owned PDVSA, as well as in Iraq. Oil production in Saudi Arabia also declined significantly to 9.79 mbpd in March, from 10.12 mbpd in February.