US OPEC Allies Cannot Replace Iran Oil Capacity

US President Donald Trump has once again taken to Twitter to slam OPEC for driving up oil prices.

The group is a useful scapegoat for blaming rising gasoline prices at home, but getting it to pump more crude will not bring them down for long. The way to really lower prices is for Trump to change his policy on Iran, Bloomberg reported.

Unfortunately, that’s not likely to happen, so oil prices could well keep rising. Oil prices have climbed by more than 50% in a year and very nearly touched $80 a barrel last week, as traders anticipated that the world’s margin of spare production capacity available to offset supply disruptions is set to seriously shrink.

They know something that the president either cannot or refuses to understand. When sanctions on Iran come into force in November, producers do not have the scope to make up for its lost output. If Trump succeeds in halting all of Iran’s oil exports, they will have to replace 2.7 million barrels a day of Iranian supply.

That is a big hole to fill.  And if they cannot do it, the cost will be steep. According to Bank of America Merrill Lynch, a complete shutdown of Iranian sales could push oil prices above $120 a barrel if Saudi Arabia cannot keep up.

In Trump’s world, the gasoline prices he focuses on should already be headed down. On Wednesday, Saudi Arabia said it pumped about 10.5 million barrels of crude a day last month.