On Saturday (30.06) President Donald Trump announced that Saudi Arabia agreed to raise its oil production. The rationale behind the increase is the reduced global supply due to Iranian sanctions and Venezuelan turmoil. It remains unclear by how much Saudi Arabia agreed to increase its output.
Why does it matter?
The announcement caught funds and investors expecting further upsides in oil prices off guard. The Saudi move is like many other of the Kingdom’s moves linked to Iran. In a sense, by giving in to Trump’s demands, the Saudis reassure Trump to remain hawkish on Iran without having to fear major shortages on global markets.
The move also underlines the continuing obsolescence of OPEC (Organisation of the Petroleum Exporting Countries). Major oil producers, such as Russia and Saudi Arabia, shape their oil policies according to their own geopolitical objectives.
Finally, with US gas prices already being high, Trump was keen on doing something vis-à-vis increasing oil prices – especially with the important mid-term elections coming up in November.
Goldman Sachs expects oil prices to plateau between $75-$80 per barrel between now and the end of the year. Three underlying reasons support higher prices:
- Strong global demand driven by macroeconomic developments
- Supply disruptions of key producers, such as Iran, Venezuela, Angola and Libya
- Pipeline capacity challenges for US shale producers