So, they have no choice but to continue and another production hike is essentially already priced in. There’s also internal pressure, particularly from the UAE and Kazakhstan. Just between them, we’re looking at around 500, 000 b/d in additional supply over the next few months. That puts Saudi Arabia in a very difficult position. They're essentially trying to maintain control of the market. The physical market is not looking great. The Brent-WTI spread is wide, around $3, which is making it difficult to move oil into Europe, even though European refineries are back from maintenance. In fact, we’re seeing VLCCs going from Europe to China to relieve pressure. Asia is relatively stronger than Europe, but it’s still not bullish. We’ve also had about 10 million barrels of Murban delivered into the Dubai window. That’s due to increasing UAE production and a shift toward sweeter barrels. Murban is now landing around $1 below WTI, so WTI is becoming uncompetitive in Asia, and that will put pressure on US crude. The global imbalance between sweet and sour crudes has become a real problem. We need more sour barrels and so OPEC returning some of those is a good thing for refiners. Yes, it’ll pressure the flat price, but in terms of balancing the global crude slate, it’s the right move. And let’s not forget, they still have millions of barrels to unwind from the cuts made over the past two years.
Have there been any recent changes in Iranian oil exports?
Despite talk of secondary sanctions, I don’t think they’ve made much of an impact. The market does get jittery when there’s talk of Israeli strikes on Iranian nuclear facilities, and that kind of geopolitical risk could still create bullish sentiment, but today that probably means a $2–$4 spike, not the $10–$20 jumps we used to see.
Medium term outlook for global oil demand?
It’s structurally weak. In China, IEA data shows that one in ten cars on the road is now electric, and by 2030, 80% of new car sales are expected to be EVs. Gasoline demand peaked long ago in the US and Europe, and it’s peaking in China now too. So, it’s hard to see where the growth will come from. Even with the weak dollar this week, which you’d expect to support oil, we’re not seeing much movement.