President Trump is stepping up his attack on Iran. He's now planning the long-game for maximum pressure. The news that Trump quietly asked Saudi Arabia to ramp up output by 1 million barrels a day is the key.
From the analysis at Oilprice.com:
Saudi Arabia and some of its close Arab allies in the Gulf, as well as the leader of the non-OPEC nations taking part in the production cut deal—Russia—are the only producers that have the spare capacity to increase production. So, in case of increased production from OPEC and allies, the potentially lower oil prices would hurt the other OPEC members that don't have the spare capacity to boost output.
The point here is to begin dropping oil prices now that the U.S. has blown out Turkey's finances and helped Saudi Arabia improve its fiscal position for the rest of the year with high oil prices.
Turkey is a net energy importer and $75+ per barrel oil is a huge drain on its finances at a time when its currency and bond markets are under serious pressure from a strengthening U.S. dollar. Don't think for a second the Turkish lira wasn't helped in its fall. This is a classic hybrid war attack on a country not playing by U.S. rules.
But, now that Trump's U.S. economy is threatened by high energy costs, he's looking to improve that situation while also putting a strain on Iran's finances through the double whammy of losing not only up to 1 million barrels of production per day but also getting $20-25 less per barrel.
And right on target, oil shorts are piling on because that's what happens when the markets are told which way policy is heading. The Saudis, never ones to miss out on an opportunity to abuse its customers, just set its monthly tender price at the highest markup over benchmark across all its grades in four years.
State-owned Saudi Arabian Oil Co. raised its official selling price for Arab Light crude for July shipment to Asia by 20 cents to $2.10 a barrel more than the Middle East benchmark, the company said Tuesday in an emailed statement. The company's third consecutive increase in the grade brings it to the highest since July 2014. The producer, known as Saudi Aramco, increased the premium by less than the 34 cent rise expected by six traders in a Bloomberg survey
According to Bloomberg, this signals the Saudis are confident in the demand for their oil in Asian markets. This is definitely a sign that they think there will be a significant drop-off in Iranian production in two months when the sanctions are reinstated by the U.S. after President Trump pulled out of the JCPOA.
Iran Has Friends
But, as I've pointed out in the past, the drop in 2012 when Iran was sanctioned off from the markets was around 800,000 barrels per day, from 3.8 million to just around 3 million.
And today things are completely different. Because the Chinese has successfully launched a yuan-denominated oil futures contract, the so-called petroyuan contract, which Iran is gleefully selling its oil on. This will ensure a more stable flow of Iranian oil to its customers this fall.