Saudi Crown Prince: We Have Iran Crude Shortfall Covered

MBS says current high prices are due to Libya, Venezuela, and other countries. File Image / Pixabay

While for crude analysts the big question is whether other nations can produce enough oil to compensate for the loss of Iran exports under the U.S. sanctions and thus avoid a price shock, for others the big question is what it will take to convince jittery traders that they do indeed have the wherewithal - and on that score, Saudi Arabia on Friday delivered the assurance to end all assurances.

Mohammed Bin Salman, crown prince of the kingdom, said in an interview that "The request that America made to Saudi Arabia and other OPEC countries is to be sure that if there is any loss of supply from Iran, that we will supply that.

"And that happened."

Addressing concerns that the Saudis aren't ramping up quickly enough and that it may not have enough capacity to fully cover Iran's losses, Mohammed pointed out that a coalition of producers from the Organization of the Petroleum Exporting Countries and beyond recently boosted output by 1.5 million barrels per day (bpd), double the 700,000 barrel decline suffered so far by Iran.

He stressed, "We export as much as two barrels for any barrel that disappeared from Iran recently; so we did our job and more," and he added that his kingdom is now pumping about 10.7 million bpd and can add a further 1.3 million "if the market needs that."

Plus, Saudi output could exceed 12 million bpd with additional investment, he said.

Mohammed then proposed a provocative explanation for the high crude prices: "The higher price that we have in the last month, it's not because of Iran, it's mostly because of things happening in Canada and Mexico, Libya, Venezuela, and other countries."

Accompanying the crown prince's remarks was an assertion from Khalid al-Falih, energy minister for the Saudis, who told the TASS news agency that OPEC is technically able to raise oil output by 1.3 million bpd.

Falih said his country had not decided yet whether it wanted to take its capacity up to 13 million bpd or keep it at current levels; however, he pointed out that the kingdom will invest $20 billion in the next few years to maintain and possibly expand its spare oil production capacity.

He stated, "This spare capacity is not just a natural reservoir that we have: this is very expensive investments for the kingdom, and some of our partners within OPEC and OPEC+ have elected to invest to maintain [oil capacity] to have the readiness on a short notice."

As impressive as the statements coming from the Saudis may be, they still don't impress the experts: Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., doubted that 12 million bpd can be reached quickly or maintained for an extended period: "Near-term spare capacity is effectively maxed out."

Barclays remains one of the few analytical organizations that has expressed confidence in OPEC compensating for Iran's shortfall: it recently stated that the cartel "has ample spare capacity" and that "softening demand growth and new supply should cool the bullish sentiment and push prices lower by the end of the year."