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Saudi Arabia will ignore Trump's 'tolerance threshold' for oil prices, analyst says

Key Points
  • Trump delivered his second warning to OPEC this year on Thursday, demanding the producer group start pumping more oil to curtail rising crude prices.
  • "The past few weeks has taught us that President Trump's oil price 'tolerance threshold' is in the high $60s," Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note published Friday.
  • Analysts at Bank of America Merrill Lynch expect Brent crude prices to climb above $74 a barrel over the next three months.
Saudi Arabia's Energy Minister Khalid al-Falih attends a press conference at the end of the 13th meeting of the Joint Ministerial Monitoring Committee (JMMC) of OPEC and non- OPEC countries in Baku on March 18, 2019.
Mladen ANTONOV | AFP

OPEC kingpin Saudi Arabia will continue to ignore President Donald Trump's tolerance threshold for rising oil prices, one analyst told CNBC on Friday, putting Riyadh on a "collision course" with Washington.

Trump delivered his second warning to OPEC this year on Thursday, demanding the producer group start pumping more oil to curtail rising crude prices.

His tweet comes at a time when OPEC and a group of allies continue to cut production following a collapse in oil prices during the final months of 2018. The output curbs by the so-called OPEC+ group have played a major part in the oil market's rebound so far this year.

"The past few weeks has taught us that President Trump's oil price 'tolerance threshold' is in the high $60s," Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note published Friday.

"A sustained move into the $70s basis Brent therefore risks putting the Saudis in the firing line for a dose of ever-increasing Trump pressure," Brennock said.

Brent crude traded at around $68.80 on Friday, up more than 1.4 percent, while West Texas Intermediate (WTI) stood at $60.47, over 2 percent higher.

Brent has rallied more than 21 percent this year, while WTI is up nearly 25 percent over the same period.

'We are taking it easy'

Analysts say pressure from the Trump administration last year — punctuated by a series of Twitter attacks on OPEC — contributed to the producer group's decision to lift production limits in June. But in recent months, OPEC members have mostly shrugged off Trump's social media demands.

The OPEC+ alliance agreed to a fresh round of production cuts in December, despite Trump calling on the group to keep pumping at high levels. Since January, the group has aimed to keep 1.2 million barrels a day off the market in order to drain oversupply.

President Donald Trump speaks to the media prior to departing on Marine One from the South Lawn of the White House in Washington, DC, March 28, 2019, as he travels to Michigan to hold a campaign rally before spending the weekend in Florida.
Saul Loeb | AFP | Getty Images

After Trump asked OPEC last month to "please relax and take it easy," Saudi Energy Minister Khalid al-Falih told CNBC "We are taking it easy."

He added that he is leaning toward extending the six-month production cuts into the second half of 2019.

Prop up prices

Last month, the International Monetary Fund (IMF) said Saudi Arabia would need oil priced at $80 to $85 a barrel to balance its budget this year.

And, while crude futures are unlikely to surge above $80 over the coming months, Brennock said every dollar above the $70 marker would help improve Riyadh's fiscal position.

For that reason, it "goes without saying" the world's top oil exporter will continue to prop up prices by limiting production.

Analysts at Bank of America Merrill Lynch said on Thursday that they expect Brent crude prices to climb above $74 a barrel over the next three months.

— CNBC's Tom DiChristopher contributed to this report.