The Trump administration’s sanctions on Iran’s energy industry have been good for Saudi Arabia’s oil business in Asia, the U.S. government said Wednesday.
The Energy Information Administration said the oil-rich kingdom has been able to sell more oil to Asia this year, despite leading OPEC oil production cuts that are meant to raise prices.
The increases in Saudi oil exports to China, Japan, South Korea, and Taiwan will likely continue through the rest of the year, now that Trump’s sanctions on Iranian crude oil are in full effect with no waivers being granted, the agency said.
Because no waiver extensions were granted after May 1, each of the four countries “will likely need an alternative to Iranian crude oil,” the EIA said in an analysis. This could keep the countries’ oil imports from Saudi Arabia at higher levels in the coming months “as a partial substitute for Iranian barrels,” it added.
Saudi Arabia will also be deciding whether or not to begin increasing production at an OPEC meeting with Russia at the end of the month in Vienna. Saudi Arabia and Russia have been leading an alliance between OPEC and non-OPEC states to cut production to prevent oil prices from falling too low.
The effort is, in part, a response to the recent arrival of U.S. crude oil exports on the global market, which is creating more competition for the Saudis and pushing prices lower.
Yet, the fact that Saudi Arabia has been able to increase its exports to grow its market in Asia raises questions over whether it will maintain production cuts at the June 25 meeting.
The Energy Information Administration says the meeting “will be a critical determinant” for whether Saudi Arabia continues exporting more oil to Asia.
Whatever decision they make, OPEC will have to factor in U.S. crude oil exports, industry officials say. If they do extend production cuts, however, they will lose a share of the oil market to the United States.
“It’s the same story as always — OPEC has got to decide, ‘Do we want higher prices or market share?'” said Dan Eberhart, CEO of oil service giant Canary, and a Trump donor.
If the Saudis do act to save their market share by raising production, then they will have to let the price of oil fall, said Eberhart.
No matter what the Saudis decide, however, U.S. shale oil is set to become more cost competitive, “and we’re taking [market] share, anyway,” he said.
