Reference Message Network reported on June 19th according to the report of "Nikkei Shimbun" on June 18th, the increasingly urgent situation in the Middle East has put Saudi Arabia in a difficult position as it tries to stabilize oil prices. Although high oil prices have brought benefits to oil-producing countries including Saudi Arabia, blind production increases may lead to a price crash, which makes Saudi Arabia continue to take a cautious stance. Meanwhile, US President Trump's actions to pressure for lower oil prices are compressing Saudi Arabia's room for maneuver.

On June 13th, Israel attacked Iran's nuclear facilities, causing oil prices to soar. The benchmark West Texas Intermediate (WTI) crude oil futures price surged to $77.62 per barrel that day, hitting a five-month high. It has remained at high levels around $70 since then.

Although Israel and Iran are still retaliating against each other, there has been no substantial impact on oil supplies so far. As the leader of OPEC, Saudi Arabia seems to be choosing to observe developments. Yukiji Fukazawa, research director at the Institute of Energy Economics, Japan, believes: "In recent years, Saudi Arabia has built good relations with Iran through diplomatic efforts. To avoid being drawn into conflicts, Saudi Arabia seems reluctant to provoke Iran."

Although rising oil prices bring benefits to Saudi Arabia, it has not blindly chosen to increase production. The current high oil price trend mainly stems from market concerns about the possibility of military conflict between Israel and Iran, not a disruption in oil supply balance. If production is increased at this stage, it may be akin to self-inflicted suppression of oil prices.

Data from the International Monetary Fund shows that the oil price required to maintain Saudi Arabia's fiscal balance is approximately $92 per barrel. This means that the current rise in oil prices has yet to reach a level that would make Saudi Arabia feel secure.

Amina Becker, an analyst at commodity analysis company Kepler, believes: "Since the current Middle Eastern conflict has not yet affected oil supplies, oil-producing countries like Saudi Arabia are unlikely to take special actions."

On the other hand, not increasing production could keep prices at high levels, which might provoke dissatisfaction from US President Trump, who hopes for lower oil prices.

According to reports by Reuters and others, Trump said on the 12th that "I am very dissatisfied with the recent rise in oil prices." Afterward, as the Middle East situation worsened, oil prices continued to rise further.

A report released by Goldman Sachs on May 13th based on Trump's social media posts showed that his expected oil price is approximately $40 to $50 per barrel. The current price of more than $70 clearly deviates from Trump's target.

The reason why the "OPEC+" mechanism, consisting of OPEC member states and non-OPEC oil-producing countries including Russia, decided to expand supply between May and July is also because the US government exerted pressure on Saudi Arabia during the Davos Forum in January.

Takayuki Nono, chief economist at the Japan Oil and Energy Security Organization, pointed out: "Trump just achieved results in expanding economic and security cooperation with Saudi Arabia during his visit to the Middle East in May. Saudi Arabia still wants to respond as much as possible to Trump's expectations."

The "OPEC+" is scheduled to meet again on July 6th to discuss August production increases. The previously set target was to increase production by 411,000 barrels per day on average from May to July. The market will focus on whether this increase can be maintained.

OPEC's monthly report on the 16th showed that among the eight member countries actually implementing the current agreement under "OPEC+", the actual production increase in May was only 154,000 barrels per day compared to the previous month, far below the originally set target. In the eyes of the market, even if a significant increase is determined in August, the actual output may not reach expectations, thus it is unlikely to have a calming effect on oil prices.

Squeezed by factors such as the Middle East situation and policies from the Trump administration, Saudi Arabia finds it increasingly difficult to determine its policy direction to stabilize oil prices. (Translated by Liu Lin)

Original article: https://www.toutiao.com/article/7517603398766690826/

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