US President Donald Trump's apparent signal of support for the Libyan National Army over the UN-backed Government of National Accord was motivated by the president's concerns over the impact another supply outage would have on oil and domestic gasoline prices, analysts said Friday.
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After imposing sanctions on PDVSA, Venezuela's state-owned oil company, in January, and reimposing sanctions on Iranian crude exports in November, Trump likely fears that the loss of Libyan crude hike crude prices to politically unsustainable levels, these analysts said.
"With average regular pump prices approaching $3/gal, rising over twice as fast as usual heading into driving season, and having erased about 90% of their big drop since last October -- a 'tax cut' he took credit for by twitter on January 2 -- President Trump is naturally worried about another spike in oil prices," said Bob McNally, president of Rapidan Energy Group.
NYMEX front-month RBOB settled at $2.0722/gal on Thursday, a six-month high, while ICE June Brent settled 35 cents higher at $71.97/b and NYMEX May WTI settled up 24 cents at $64.00/b.
The White House Friday reported that Trump on Monday had a phone call with Khalifa Haftar, head of the Libyan National Army, and recognized his efforts in "securing Libya's oil resources." The US had backed the Government of National Accord, but analysts said Trump may be switching allegiances in order to prevent a disruption to Libya's roughly 1.2 million b/d in oil output. Fighting has intensified as Haftar's LNA seeks to take over the capital Tripoli, where the GNA is based.
TRUMP OUTPUT PUSH
Trump, this month, has ramped up efforts to get Middle East producers to boost production in order to prevent a significant price hike this summer.
In addition to the Haftar call Monday, Trump on Thursday spoke with Abu Dhabi Crown Prince Mohammed bin Zayed al-Nahyan about the UAE'S "contributions to the global energy markets as a reliable supplier of oil," and about the Trump administration's "crippling sanctions on Iran," according to the White House. And, on April 9, Trump spoke by phone with Saudi Crown Prince Mohammed bin Salman about "maintaining maximum pressure against Iran," according to the White House. Analysts said Trump likely requested an increase in Saudi oil output during this call.
In addition to sanctions on PDVSA, which could reduce Venezuela's oil output to 500,000 b/d by the end of this year, the Trump administration in early May is expected to extend sanctions waivers, known as significant reduction exemptions, to some of Iran's biggest oil buyers, including China and India.
Sara Vakhshouri, president of SVB Energy International, said she expects the Trump administration to extend some of those waivers, but said officials could also increase pressure on Iran by applying new sanctions on Iran petrochemical exports, petroleum products or non-oil export items.
Saudi Arabia is opposed to these waivers and some analysts have speculated that the US may curtail the waivers in exchange for a Saudi increase in production. But the path forward is complicated by the fate of the 1.2 million b/d global supply cut pact by OPEC and non-OPEC producers, led by Russia, which may be extended at a meeting scheduled for June 26, a day after OPEC meets.
"Unlike last year, the decision on energy sanctions exemptions will come before the OPEC meeting and the White House will have to really show whether they will back words with action before [Saudi Arabia and the UAE] open the pumps," said Helima Croft, global head of commodity strategy for RBC Capital Markets. "Saudi certainly has to increase by several hundred thousand barrels and remain compliant with its OPEC quota of 10.2 million b/d, but getting them to do more could really require something pretty dramatic on the Iran exemptions front."
A nine-country monitoring committee co-chaired by the coalition's two largest members -- Saudi Arabia, which wants to extend the cuts, and Russia, which is more circumspect -- is scheduled to meet May 19 to review market conditions.
OPEC collectively produced 30.23 million b/d in March, down 570,000 b/d from February and its lowest monthly production average in over four years, according to the latest S&P Global Platts survey.
Saudi Arabia produced 9.87 million b/d in March, down 280,000 b/d from February, while the UAE produced 3.05 million b/d, unchanged from the previous month, according to the Platts survey. Libya, which is exempt from the cut agreement, produced 1.06 million b/d in March, according to the survey.
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