President Trump said on Saturday that King Salman of Saudi Arabia has agreed to up its oil production by as much as "2,000,000 barrels" to help bring down prices after instability in Iran and Venezuela.
The tension began rising when Trump withdrew the USA from the nuclear deal between Iran and six other world powers last May.
OPEC and non-OPEC countries said they would raise supply by returning to 100 percent compliance with previously agreed output cuts, after months of underproduction.
"The clear message from the OPEC+ meetings was that those countries with spare capacity would increase production to keep the market well-supplied", U.S. Jefferies bank said on Friday.
Oil prices dipped on Friday amid escalating trade friction between the United States and other major economies, although crude markets remain tight due to supply disruptions and generally high demand, Reuters reports. The White House says it's been advised that the kingdom will prudently use that capacity "if and when necessary" to ensure market balance and stability. A gallon of regular gasoline sold on average in the US for $2.85, up from $2.23 a gallon a year ago, according to AAA. The 13% surge in prices has been driven by a series of factors in the global oil market that will trickle down to U.S. drivers filling up their gas tanks.
Indian Oil Corp, Mangalore Refineries and Petrochemicals Ltd and Nayara Energy, the top three Indian buyers of Iranian oil, did not respond to Reuters's request for comments.
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North America's oil markets have tightened significantly as an outage of Canada's Syncrude has locked in over 300,000 bpd of production. Against a backdrop of calls from the US, China, and India for more oil supply to stabilise the market, OPEC made a decision to raise output.
A short time later the Saudi government confirmed the phone conversation but stopped short of affirming Trump's claim of an oil hike. "There is no way one country could go two million barrels a day above their production allocation unless they are walking out of OPEC". A request by Trump for 2 million bpd more would be at least double market expectations.
It is now being reported that Saudi Arabia may increase its oil production by 1 million barrels after OPEC talks last week, and not because of POTUS' persuasion.
"Because of (sanctions on) Iranian crude, we are looking at USA heavy crude" as a substitute, the source said, in particular grades such as Southern Green Canyon and Mars, which are similar to crude from Iran.
While a final view on the U.S. asking India and China to cut Iranian oil imports has not yet been taken, the Petroleum Ministry has asked refiners to tread cautiously and start looking at alternatives. Among its disclosures are what it says has been its expenditure, along with its project partners, of more than US$24 million with more than 300 local suppliers past year.
India's oil ministry held a meeting with refiners on Thursday (June 28), urging them to scout for alternatives to Iranian oil, the sources said.