Saudi Arabia has announced a major cut in oil production to rebalance global markets and prop up plunging oil prices, citing U.S. sanctions waivers that are enabling Iran to keep exporting oil to most of its top customers.
The comments from Saudi Arabian Oil Minister Khalid al-Falih on November 12 shook global markets, where oil prices have plummeted since the United States announced last week that it was temporarily waiving sanctions on Iran's oil sector for many of Tehran's top oil customers, including China and India.
Before the unexpectedly mild sanctions announcement, "fear and anxiety gripped the market," Falih said at the Abu Dhabi International Petroleum Exhibition & Conference.
Now "we're seeing the pendulum swing violently to the other side," he said.
"Sanctions didn’t cut so much out of the market as anticipated," Falih said.
In the months before the sanctions were imposed on November 5, Saudi Arabia said it had increased its own production by about 1 million barrels a day to offset a reported halving of Iran's oil exports from a peak of about 2.5 million barrels in April.
But with major oil consumers like India and China still importing Iranian oil under six-month waivers granted by Washington, analysts have been upwardly revising their estimates of Iranian exports, saying they could be as high as 1.8 million barrels a day.
That has helped feed a major plunge in premium crude prices in the last week from more than $80 a barrel to around $71 on November 12.
At the time he granted broad exemptions from the sanctions, U.S. President Donald Trump said he was concerned about a spike in oil prices like the one that occurred after he withdrew the United States from Iran's 2015 nuclear agreement in May and announced he was reimposing sanctions.
Trump provided six-month waivers to Greece, Italy, Japan, South Korea, Taiwan, and Turkey, as well as India and China -- Iran's top two oil customers -- as long as they keep working to reduce their imports.
Trump's stated concerns about oil prices were a tacit admission that the looming U.S. sanctions on Iran had helped to drive up oil prices, although Trump publicly blamed the OPEC oil cartel for the price spike.
On November 12, Trump lashed out at Saudi Arabia's announcement that it will now cut production since Iran is being allowed to keep exporting more oil than expected.
"Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower, based on supply!" Trump said on Twitter.
Falih responded that Saudi Arabia has been giving Washington and other customers "100 percent of what they asked for." But he said Riyadh will start cutting production by more than 500,000 barrels a day next month.
Saudi Arabia is OPEC's largest producer and one of the few that has enough spare capacity to offset a deep cut in Iran's oil exports.
The energy minister of the United Arab Emirates, Suhail al-Mazrouei, currently the president of OPEC, said further "changes" likely would be necessary when the oil cartel meets in December in Vienna.
Falih said OPEC officials have seen analyses suggesting a production cut of as much as 1 million barrels a day may be needed to rebalance the market and prop up prices. However, he stressed that more study needs to be done.
"We don't want to throttle the global economy," he said.
Iran did not have a high-level official at the Abu Dhabi event and did not immediately respond to Falih's comments.