President Donald Trump said Tuesday that the USA would withdraw from the Iran nuclear deal and reimpose sanctions that have been frozen since January 2016 as part of the Joint Comprehensive Plan of Action. The sanctions, which will snap into place after a 180-day wind-down period, could disrupt up to 1 million barrels a day of Iranian crude - a quarter of its total output.
On Monday, Saudi Arabian Energy Minister Khalid Al-Falih was repeating his mantra that production cuts by OPEC and its allies must keep going.
Mr Falih said Saudi Arabia is not targeting a specific price for oil, discounting a May 4 report in The Wall Street Journal that Riyadh wants to oil to hit at least Dollars 80 a barrel this year.
"We have managed to put together this new alliance between OPEC and non-OPEC".
Oil prices are stable because of market stability, he said, because OPEC's goal "is not prices but market stability and lowering storage levels".
OPEC and other major producers, led by Russian Federation, have been cutting 1.8 million barrels per day (MMBPD) of production from the market to help drain the global supply glut and lift crude prices, to a three and a half-year high recently. Oil futures rose to a three-year high of US$77.65 a barrel in London at 8.10 am on Thursday. Kuwait later gave a similar assurance.
Boosting output to compensate for Iran and rein in rising prices would prevent damage to the global economy, and fuel demand.
There are risks too.
OPEC has to engage in some balancing acts, said Bassam Fattouh, director at the Oxford Institute for Energy Studies. "They want to preserve the deal that they worked very hard to achieve", he said, referring to the group's historic production cuts.
Saudi Arabia is monitoring the impact of the US withdrawal from the Iran nuclear deal on oil supplies and is ready to offset any potential shortage but it will not act alone to fill in the gap, an OPEC source familiar with the kingdom's oil thinking said on Wednesday.
Much depends on Russian Federation. "The U.S. sanctions announced today are expected to result in a decline in Iranian crude oil production of 400,000 barrels per day".
If the latter argument prevails, President Trump's decision may in fact have finally provided Opec and Russian Federation, who in 2016 had expected their effort to take just six months, with an exit strategy. The OPEC-Russia supply restriction is seeing its last days..
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