DUBAI (Reuters) - Saudi Arabia indicated on Wednesday that it could raise its oil output to offset any potential supply shortage as a result of new sanctions on Tehran, after U.S. President Donald Trump said Washington was withdrawing from the Iran nuclear deal.
Oil prices had been supported by expectations that Trump would pull out of the deal, which could hit Iranian crude exports and feed geopolitical tensions in the Middle East, home to one-third of the world’s daily oil supply.
Trump said on Tuesday that the United States was reimposing the “highest level of economic sanctions” on Iran, but he did not provide details. The original 2015 agreement had lifted sanctions in exchange for Tehran limiting its nuclear program.
Saudi Arabia “will work with major producers and consumers within and outside OPEC to limit the impact of any supply shortages,” a Saudi energy ministry official said on Wednesday, according to state news agency SPA.
“Following the U.S. decision to withdraw from the nuclear agreement with Iran, Saudi Arabia is committed to supporting the stability of oil markets for the benefit of producers and consumers and the sustainability of the global economic growth,” the official said.
U.S. crude settled down $1.67 at $69.06 per barrel and Brent settled down $1.32 at $74.85. [O/R]
It was the busiest day in U.S. front-month contracts since August, and for Brent the busiest in almost a month.
The Organization of the Petroleum Exporting Countries is in the midst of an oil supply-cutting deal with non-OPEC producers such as Russia that has helped erase a global glut and boosted oil prices above $75, the highest since 2014.
OPEC meets next in June, where it is widely expected to continue with the supply cuts until the end of 2018.
But a drop in Iranian exports due to a return of U.S. sanctions, plus involuntary supply losses in other OPEC members such as Venezuela, would mean the supply cut would be significantly larger than intended. That raised worries of a quick rise in oil prices.
Iran produces about 3.8 million barrels per day (bpd) and the country is OPEC’s third-biggest producer, behind Saudi Arabia and Iraq. Its production accounts for about 4 percent of the world’s oil supplies.
Since the Iran nuclear deal went into effect, its exports have risen to about 2.5 million bpd, from less than 1 million bpd. A majority goes to Asia, with Europe receiving about 600,000 bpd.
Last month, Trump accused OPEC in a tweet of “artificially” boosting oil prices.
Reporting by Rania El Gamal; editing by Hugh Lawson and Rosalba O'Brien