UN General Assembly: will diplomasy talks help the global oil market?

Ed Butler (0:01)

President Trump was feeling thoughtful today.

Donald Trump (0:04)

I have a big decision to make. Will a deal be made, or do I annihilate the Islamic Republic?

Ed Butler (0:12)

But while the president was musing over Iran, and global oil reserves were hitting record lows.

Nick Butler (0:18)

We've pulled a lot out of those reserves, and they are now at rather dangerously low levels. They run out within a month or two.

Ed Butler (0:25)

So how worried should we be? This is World Business Report from the BBC.

Yes, I'm Ed Butler and today we're going to be examining what's been happening on the global oil markets on the week that we've learned that US oil reserves have hit lows, not since the 1980s. Also in the show we follow the cost of a highly tariffed Chinese made toy as it travels all the way to America, and why women screenwriters write more profitable films.

It was a frenetic, often slightly bewildering day of diplomacy, it seems, at the United Nations General Assembly in New York. The US president has always in the thick of it. Donald Trump has variously been threatening Iran with annihilation, whilst also praising it as potentially one of the greatest countries in the world. He also told reporters that there would be a peace deal, but not soon. Here's the president in his own words.

Donald Trump (1:27)

But I have a big decision to make.

Will a deal be made with Iran that lets them rebuild and create a far greater country than it ever was before, maybe one of the greatest in the Middle East or even the world? Or do I annihilate the Islamic Republic and do it quickly, ever giving them a chance to kill and destroy people and countries again? Do I drive them into hell with no chance of survival and no hope of future greatness or generations? But I believe we'll make a deal right after the election because it doesn't make sense for them not to.

Ed Butler (2:12)

So perhaps a deal then, but not, he says, before November's midterm elections. Following those comments, the market seemed seemingly didn't know what to think. First, the oil price surged, then it slid after a further presidential announcement that a White House team had been holding face to face meetings with senior Iranian officials, which Mr Trump described as productive. In other news in the Middle East itself, Saudi Arabia reportedly reopened its oil pipeline. This is the one connecting the kingdom's main oil fields in the east with the Red Sea.

This had been hit in an earlier drone attack by Iraqi militia aligned with Iran. Navin Das is a senior oil analyst at Kepler. He told me about the significance of the reopening.

Navin Das (2:57)

Well, I think if we can have a sustained operation on the east-west pipeline, combination of both Saudi loadings from the west coast and the east coast, I think that would be a major signal to the market to show that we can have supply for recovering in Saudi Arabia, and it would add to the tune of at least a million, to maybe potentially 2 million barrels a day of supply. But the main caveat is still the uncertainty around flows, both through the Persian Gulf and the Strait of Hormuz, and the Red Sea.

Ed Butler (3:26)

And 2 million barrels, I mean, that is a big number, is it? In terms of what we had been seeing, for instance, before the war.

Navin Das (3:32)

Yes, so we're comparing this to say a baseline of pre-war. We've seen about 7 million, 6.5 to 7 million barrels per day of crude oil still shut in because of the uncertainty of the flows that are leaving the region. So there is potential upside for production still.

Ed Butler (3:48)

Okay, just to be clear though, just because oil is getting to the shore in Saudi Arabia, doesn't mean it's getting out, does it? You've got the Straits of Hormuz on one side, you've got the threat of Yemeni Houthis on the other, and potentially both can disrupt oil even once it's at sea.

Navin Das (4:05)

We are seeing a tick higher in flows through the Persian Gulf and a tick higher potentially in the Red Sea as well. But for production to come back in a meaningful way, as you said, there needs to be trust in the long term, so sustained flows and flows without threats coming out of the region. So you're right to mention that while oil can reach the shores and the ports and loadings may increase, there are still material risks of getting the oil out of the region.