Saudi Oil Minister Ali al-Naimi says there’s no need for OPEC to reduce production to shore up the price of oil because the market will fix itself. Despite his optimism, Russia said it would refuse to cut output, apparently threatening a price war over oil.
“The market will stabilize itself eventually,” al-Naimi told reporters on Nov. 25 in Vienna, where some of the world’s biggest oil producers were meeting two days before OPEC’s summit at its headquarters in the Austrian capital.
The cartel’s meeting is crucial because oil prices have plummeted by about 30 percent since mid-June, from around $110 per barrel to below $79 per barrel, in part because of the boom in shale oil in the United States and lower demand because of a slowing of global economic growth.
Some OPEC members, including Iran, Libya and Venezuela, have pressed hard for OPEC to reduce production at its meeting. And Russia, not an OPEC member but responsible for more than 10 percent of the world’s oil each year, had been expected to do the same because of the damage to its economy from low prices and Western sanctions.
As it turned out, though, Igor Sechin, the CEO of Russia’s state-owned oil company Rosneft, said after the meeting that Moscow wouldn’t cut production even if oil fell to $60 per barrel. He said whatever pain Russia suffered would be magnified for other countries where harvesting oil is more expensive.
Sechin evidently was referring to the United States, whose shale-oil boom is predicated on new and costly techniques that include hydraulic fracturing, or fracking, and horizontal drilling.
Russia’s animus against the United States stems in part from US and European Union sanctions on Russia’s oil and banking sectors because of Russia’s unilateral annexation of Ukraine’s Crimean peninsula and its suspected involvement in the fighting in Ukraine between pro-Russian separatists and forces loyal to Kiev.
OPEC countries produce 30 million barrels of oil per day, or about one-third of the world’s oil supply. But that amount will exceed global demand by about 1 million barrels per day in the first half of 2015, according to OPEC’s own figures.
Despite those figures and pressure to reduce production, Saudi Arabia has indicated that it may not be ready to act. And as the cartel’s largest producer, it essentially has veto power over the other 11 members because OPEC production decisions must be made by unanimous vote.
In fact, some Saudi officials have told Reuters that their country could possibly survive oil prices as low as $70 per barrel for a long time. This obviously would have a deep impact on Saudi Arabia’s income, and theories abound about what Riyadh might get in return.
One line of thinking is that Saudi Arabia is intent on its own price war with the United States, whose shale-oil boom is close to making the country energy independent and could make it an oil exporter competing with OPEC members. Keeping prices low could turn the US boom to a bust.
Another theory is that lower prices badly hurt both Russia and Iran, which are major backers of embattled Syrian President Bashar al-Assad, one of Saudi Arabia’s bitterest enemies.
By Andy Tully of Oilprice.com
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