The direction of oil prices is uncertain.

Between January 22 and February 12 oil prices fell sharply.

Brent fell from $69.03 dollars a barrel to $59.48. COMEX oil prices fell from $63.83 dollars a barrel to $59.48 dollars a barrel.

Beginning on April 9 COMEX and Brent oil prices have risen steadily, reaching highs on May 21 of $72.24 and $79.22 respectively.  Since then prices have been firm and have declined only slightly.

On Friday, #President Trump told #King Salman bin Abdulaziz Al Saud that the oil market could need more supply. The Saudi leader said he was ready to raise output “if needed.”

The White House announcement appeared to row back an earlier Trump tweet that appeared to suggest the Saudis had definitely agreed to boost output by that amount.

“Just spoke to King Salman of Saudi Arabia and explained to him that, because of the turmoil & disfunction in Iran and Venezuela, I am asking that Saudi Arabia increase oil production, maybe up to 2,000,000 barrels, to make up the difference …. Prices to high! He has agreed!” Trump tweeted.

Saudi Arabia along with other Organization of Petroleum Exporting Countries (OPEC) and non-OPEC nations, including Russia, had agreed on June 22 to boost production by a combined 700,000 to 1 million barrels a day. The Saudis have 2 million barrels per day of spare capacity. Thus, a 2 million bpd-increase would be at least double market expectations.

Earlier in the week a source familiar with Saudi Arabia’s production plans told Reuters that the kingdom intended to increase output by 200,000 bpd this month.

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The President has repeated blamed OPEC for the recent run-up in gasoline prices.

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The OPEC Meeting

The OPEC meeting has been seen by some observers as a portent of higher oil prices.

At that meeting OPEC announced a smaller-than-expected increase in crude production.

OPEC agreed to rein in overcompliance with its production-cut agreement. Specifically, they agreed to scale back its 152% compliance rate down to 100%. Based on the numbers OPEC provide, that equates to an output increase of 624,000 barrels a day for its members.

OPEC ministers have said that the agreement is to raise output by 1 million barrels. However, that is not in the statement the group provided. Nigerian oil minister Ibe Kachikwu said the 1 million-barrel agreement would see OPEC members raise output by at least 700,000 barrels a day. Non-OPEC countries, led by Russia, would add the rest

The statement falls short of balancing global [oil] supply and demand, particularly in the fourth quarter.” This according to Tom Kloza, global head of energy analysis at Oil Price Information Service. “Given sanctions on Iran, chaos in Venezuela and Libya, and the usual unpredictable nature of Nigeria, we see crude-oil prices making another run at $70+ for WTI and $80+ for Brent.” “That should underpin gasoline prices,” he said.

“The real risk comes with tropical storm season and [the] threat to Gulf of Mexico refineries.” There is export demand of about 600,000 barrels a day for gasoline. In addition, domestic consumption is likely to be 9.7 million barrels a day in peak driving summer weeks. As a result, the “U.S. refiners have no room for error.”

Overall, OPEC’s move was “lousy for motorists.” This according to Patrick DeHaan, head of petroleum analysis at GasBuddy. His outlook for retail gasoline prices over the coming months isn’t much different as a result of OPEC’s decision. “I’m calling this a bust for motorists hoping for noticeably lower gas prices.” It’s likely to fall to the mid-$2s in autumn and winter, “leaving Venezuela and their falling production levels a wild card that perhaps OPEC will address.”

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U.S. Production

Meanwhile, #U.S. oil exports have risen to record levels.  But this might not be sustainable.

U.S. oil exports reached a record 3 million barrels a day last week. This is a greater amount than is pumped each day by all but three OPEC countries.

When combined with fuel products, like diesel and gasoline, U.S. oil and related products exports totaled 8.5 million barrels a day last week. This is the most ever.

Total U.S. oil production also continued at a record pace. It has reached 10.9 million barrels a day. That is more oil than produced by every other country in the world, except for Russia. Russia pumps just over 11 million barrels a day. U.S. refineries also took in a record 18 million barrels of oil.

“The fact is we’re loading crude oil for export across the Texas Gulf Coast. The biggest issue that exporters are facing is getting oil from the Permian basin to the Gulf Coast. There is a lack of pipeline capacity.” This according to Andrew Lipow, president of Lipow Oil Associates.

The 3 million barrel level may not be sustainable just yet. Analysts said some of the oil appears to have been pulled from inventories. Inventories have fallen by an unusually large amount.

“We’ve gone from zero to 3 million barrels a day in terms of crude oil exports in just over a year. It’s been a steady climb. This puts tremendous pressure on U.S. crude oil supplies despite the shale boom …” “The exports and the record refinery run combined created a massive draw down of nearly 10 million barrels.”

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Saudis Under Pressure

All of these variables bring us back to the Saudis.

“Saudi Arabia is under massive pressure.” This according to Jaafar Altaie, managing director of consultant Manaar Group in Abu Dhabi. “The Saudis would prefer a gradual increase in oil production that won’t shock the market. They prefer keeping prices between $70 and $80 a barrel. But for political reasons they need to react to Trump’s demands.”

Iran, OPEC’s third-largest producer, lashed out at Trump’s interventions and Saudi Arabia’s accommodating responses. OPEC should reject the U.S. call for a production increase that is “politically motivated against Iran.” This statement was from Iran Oil Minister Bijan Namdar Zanganeh. “An increase in any nation’s output beyond limits that OPEC set in 2016 would breach the agreement.”

“The deal’s over.” This according to Robin Mills, chief executive officer of consultant Qamar Energy in Dubai. “It is a real blow to OPEC. This is due in part because of the impression the Saudis are following U.S. bidding. But mostly because Saudi Arabia and Russia had stitched up a deal to raise production anyway even before the meeting.”

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