A month after President Donald Trump announced that the United States withdrew from the Iranian nuclear agreement and re-impose sanctions on oil from Tehran, the Iranian aristocrat and actual leader of OPEC, Saudi Arabia, got their cartel members in the Arab Gulf and partner in June. OPEC + in Russia on board to start pumping more oil to offset the expected loss of supplies from Iran.
Just five months later, Saudi Arabia and OPEC suggest a reduction in the production of fresh oil, as rising production and signs of falling demand indicate a surplus next year.
The oil market and analysts who questioned only Saudi and Russian ability to compensate for the expected sudden losses in Iran only two months ago now think that OPEC and its allies have reacted too early to help the global supply of crude oil.
Analysts say that President Trump, deliberately or not, has "taken" Saudis to overproduction to compensate for what was expected to be more than 1 million bpd, and even close to 2 million bpd losses from Iran.
The Saudis and Russia have never said that they are compensating for Iran – their goal, as always, was to ensure "market stability", the favorite slogan of OPEC.
Throughout the summer and early autumn, the United States has suggested that this time the sanctions will be tougher than during the Obama administration and that the goal is to reduce exports of Iranian oil exports to zero.
In fact, few thought that Iran's exports in the beginning of November would be zero, but the oil market and analysts began to fear Iran's loss would be much greater than previously anticipated. As a result, the market reacted positively to growing production from Saudi Arabia and Russia, and even questioned whether this was enough.
Oil prices have risen to the highest level in four years, and Brent Crude hit $ 86 in early October, a month before US sanctions against Iran.
But these higher oil prices have begun to affect the oil import account in many emerging markets, especially on the world's third-largest oil importer in India, deteriorating, shifting local currencies to the US dollar.
Add to that the growing US-China trade war, which began to have a negative impact on global prospects for economic growth and demand for oil, and the fear of a supply crisis has turned into fear of declining demand. In just two months, the key question among market participants and analysts has also changed with "whether they pump enough" to "not overproduce".
Then began US sanctions against Iran, and with it exemptions for eight Iranian oil customers – including the largest buyers of China and India – due to the special circumstances of the countries and the provision of a well-stocked oil market, as the US secretary of state Mike Pompeo said.
Related: Natural gas markets remain heavily loaded
Sanctions on Iran and the abolition of the United States took place on the eve of the elections to the USA. President Trump lowered gasoline prices in the United States to the lowest level for six months a week before the election. According to analysts, few things really frighten the American president more than rising fuel prices.
According to analysts who spoke to CNBC, the Saudis were cheated to pump more in anticipation of Iran's serious losses and the US's firm stance on the dismissals and Iran's exports to zero.
Iran's exports have fallen by about 1 million barrels since May, but probably about 1.2 million bpd – 1.5 million barrels a day probably still flows to Tehran's customers – compared to estimates that 1.5 million barrels per day, or even 2 million bpd export will be choked.
The Saudis have been deceived to stimulate oil production, Matt Smith, head of commodity research at ClipperData, said CNBC.
Related: Oil prices rise when Saudis cuts exports
"They really did a good job lowering the price of oil, but it's at the expense of some of those relationships, because the Saudis must certainly be very unhappy with what's going on here," Smith said.
The Saudis now suggest another change that will take place next year. The Saudi minister of energy Khalid al-Falih reiterated that "we must do everything to balance the market", but Russia is reluctant to join the next collective reduction in supply.
President Trump does not suggest anything – he said prices should be even lower in his last tweet this week it was aimed at OPEC. "I hope that Saudi Arabia and OPEC will not reduce oil production. Oil prices should be much lower depending on supply!"
The next full OPEC meeting, where decisions on production policy can be made, takes place in the first week of December. We are waiting two and a half weeks of rumors, spills, hints and comments from Saudi Arabia and Russia, and probably from President Trump.
Author: Tsvetana Paraskova for Oilprice.com
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