OPEC, Russia and several other producers recently agreed to increase output by 1 million barrels in order to ease oil prices away from 3½-year highs. But many analysts think they will struggle to add that much supply because only a handful of the countries have spare capacity.
However, Barclays said the market is underestimating the spare capacity that Saudi Arabia, Russia, Kuwait and UAE can tap. A recent estimate by the U.S. Energy Information Administration could be overlooking 1.5 million barrels a day of spare capacity, Barclays said.
Oil bulls also tend to assume that Saudi Arabia and Russia are trying to guide crude prices to $80 a barrel, a view fueled by news reports earlier this year. However, Barclays said President Donald Trump‘s recent Twitter demands for OPEC to tamp down gasoline prices will resonate with the Saudis, who enjoy friendly ties with his administration.
“The Saudis also do not want to disappoint US policymakers nor lose its credibility,” wrote Michael Cohen, head of energy markets research at Barclays. “In our view, Trump has made clear in his tweets that he is not happy with higher oil prices, which is part of a long history of targeting OPEC.”
Saudi Arabia is likely to start exporting more oil to the United States, which would replenish American stockpiles, Barclays said. The United States has some of the most transparent and closely watched inventory data in the world. A jump in U.S. stockpiles can dampen fears of undersupply and guide prices lower.
Governments around the world could also tap their strategic oil reserves, Barclays said. While oil stockpiles held by companies have fallen to their five-year average at 2.8 billion barrels, governments in developed countries keep another 1.8 billion barrels in reserve for emergencies, according to the bank.
Barclays added the Trump administration could give China and India more time to reduce their purchases of Iranian oil. The State Department recently said it is pushing oil buyers to cut those purchases to zero, but the administration might back off that demand if gasoline prices rise ahead of midterm elections in November, it said.