The previous week began with important news for the entire oil market. The main consumers of oil on the planet, China and India, are on the verge of concluding a formal agreement on the establishment of a kind of club of oil importers.

The club of oil importers will make it possible to better influence the formation of prices for “black gold”. Members of the club of importers will be able to buy more American oil in order to reduce the “weight” of OPEC, both in the global oil market and in the pricing process. These obvious reasons for creating the club were cited in a statement by the Indian Ministry of Petroleum Industry back in June 2018, when oil prices on the eve of the introduction of American sanctions against the Iranian oil industry sharply went up and when the first consultations on this the issue.
Indian Oil Industry Minister Dharmendra Pradhan has repeatedly spoken of the harm that high oil prices cause to the Indian economy. He appealed to OPEC with a request to think when making decisions that could influence prices, not only about oil-producing countries and sellers, but also about oil buyers.

The messages about strengthening cooperation between India and China in creating a club of oil importers appeared at the very moment when Washington decided not to renew permits for the purchase of Iranian oil for eight countries, which include, by the way, India and China. These permits expired on Thursday, May 2. After they are canceled, any country or company that buys oil from Iran, starting from May 3, risks falling under the effect of secondary US sanctions.
China, meanwhile, is the main buyer of Iranian oil, which Washington wants so much to export. India in the list of importers of Iranian oil in second place. Both countries met the decision of the White House negatively. Beijing, for example, declared a formal protest in which it stressed that it would protect the interests of Chinese companies. Obviously, we are talking about companies that buy oil from Tehran, and that the Chinese are not going to refuse it.

The interests of the new cartel coincide with the intentions of one of the largest oil producers. Saudi Arabia intends to put an end to the practice of creating an artificial shortage of its oil in the market, when actual deliveries are made in a volume less than the demand presented by customers. According to Reuters sources familiar with the plans of the kingdom, Riyadh plans to turn the valve to full capacity over the next two months. However, this will not lead to an immediate increase in exports. Additional oil is likely to be used inside Saudi Arabia itself, which in summer requires more electricity, including room conditioning. But in June or July, Saudi oil will spill onto the world market. “The Saudis want oil prices to remain at current levels <...> another one or two months,” a source told Reuters.
After that, the policy of Riyadh may change. “If customers request more oil, the Saudis will increase production,” the source adds.

The state-owned oil company Saudi Aramco began artificially limiting supplies in April, rejecting 10% of bids from customers. In terms of physical oil, non-deliveries amounted to about 635 thousand barrels per day. The total volume of Saudi exports has been cut to a minimum of 6.5 million barrels per day since 2015. This is 2 million barrels, or 25% below November levels of last year. As a result, prices soared to 6-month highs, exceeding $ 75 per barrel for Brent in late April.
Now, almost all the oil seized will return to the market. According to Bloomberg, the United Arab Emirates will join Saudi Arabia. In sum, the Middle Eastern members of OPEC agreed in a short time to throw out 1.5 million barrels of additional daily supplies in order to compensate for the volumes lost due to the anti-Iran sanctions.
For the time being, Saudi Arabia’s hands are tied up by the OPEC + pact, which allocates a quota of 10.3 million barrels per day to it. But the term of this agreement expires in June, and it is not necessary to wait for its extension, says Matthew Reed, Vice-President of Foreign Reports: “The decision on anti-Iran sanctions will end the OPEC deal. They cannot simultaneously hold 1.2 million barrels and replace Iranian oil by 1 million. " “The fact that Russia, another key participant in the transaction, instead of restricting exports in April, increased it to a 2-year high of 5.7 million barrels per day, says ESAI chief analyst Andrew Reed, will not escape the attention of the Saudis.”

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