An uncertain demand outlook and looming supply shortfall will pit the Saudis against Russia, and create a standoff with Iran and Venezuela.
Rising tensions in the Middle East are vying with fears over an escalating trade war between the U.S. and China to determine the course of oil prices in the coming weeks. In the midst of the turmoil, a group of OPEC+ oil ministers are meeting to recommend a course of action for the group over the second half of the year. Their task is not an enviable one.
As the Middle East seems to be slipping closer to another armed conflict, the OPEC+ group’s Joint Ministerial Monitoring Committee meets today in Jeddah, Saudi Arabia. This is the group set up as part of the 2016 OPEC+ agreement to monitor compliance with the output targets and which Iran has accused Saudi Arabia of seeking to use as an alternative to OPEC.
While it doesn’t have the power to set policy, the JMMC will recommend a course of action to the full OPEC and OPEC+ ministerial meetings to be held in Vienna, Austria in late June. Co-chaired by Saudi Arabia and Russia, its view will carry weight.
Not surprisingly, Iran’s oil minister is not making the trip to Jeddah. Saudi Arabia has accused its Persian Gulf neighbor of ordering last week’s drone strikes on its East-West pipeline, claimed by Iran-backed Houthis in Yemen. Oil flow along the line, which has the capacity to carry 5 million barrels a day of crude from fields in the east of the kingdom to refineries and export terminals on its Red Sea coast, bypassing the Strait of Hormuz was briefly disrupted. An attack earlier in the week on several oil tankers off the U.A.E. port of Fujairah, has also been linked to Iran. One Saudi newspaper has called for “surgical strikes” against the country.