Published: Wed, October 24, 2018
Markets | By Terence Owen

Saudi Arabia has ‘no intention’ of 1973 oil embargo replay

Saudi Arabia has ‘no intention’ of 1973 oil embargo replay

Oil prices dipped on Tuesday after Saudi Arabia pledged to play a "responsible role" in energy markets, although sentiment remained nervous in the run-up to US sanctions against Iran's crude exports that start next month.

The kingdom, which produces more than a tenth of global supplies, had vowed on Monday not to withhold its output as a political weapon amid the worldwide backlash over the murder of journalist Jamal Khashoggi.

"Iran might be pushing the idea of Russian Federation selling their oil on the world market to evade sanctions", a senior administration official told The Financial Times.

"Saudi Arabia is a completely responsible country".

"Saudi and Russian oil production is now close to its highest historical level, and the two countries have no additional capacity to produce more and replace Iran's oil", he added. Washington is largely depending on Saudi Arabia to fill the gap left by the loss of the Iranian barrels.

The minister said Saudi Arabia had in fact used its inventories to release about 500,000 barrels per day (bpd) of more oil to the market between May and September.

The embargo caused a sharp spike in oil and gasoline prices with long-term negative effects on the global economy.

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Additionally, Fatih Birol, executive director of the International Energy Agency (IEA), said on Monday that other producers may struggle to fully make up for the expected Iran disruption, and that oil prices could rise further.

Falih said oil producers will continue to monitor supply and demand in the market, especially with the Iran sanctions about to kick in, and would be ready to act if needed.

Oil prices spiked on the move, as they did later in 1979 because of the Iranian revolution.

"The weekly inventory data is unlikely to provide any respite, with a fifth consecutive build expected to United States oil inventories", said Matt Smith, director of commodity research at ClipperData.

US light crude dropped $3.03, or 4.4 percent, to $66.33 a barrel, after earlier hitting a two-month low at $65.74.

"We have just upgraded our price forecasts for 2019 Brent by $20.5 per barrel to $83.5 per barrel", the USA bank said, adding that this "bullish argument is strongly driven by tighter supply due to Iranian sanctions and declining spare capacity". There has been concern that just as markets tighten on the back of the U.S. sanctions against Iran, Saudi Arabia could cut crude supply in retaliation for potential sanctions against it over the Khashoggi killing.

"We have sanctions on Iran, and nobody has a clue what Iranians' exports will be".

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