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Saudi Arabia Oil Minister Ali al-Naimi, still on the offensive, says his country would never cut production to prop up the price of crude, even if it dropped to $20 per barrel.
“Whether it goes down to $20, $40, $50, $60 – it is irrelevant,” was al-Naimi’s succinct conclusion in an interview published Dec. 22 in Middle East Economic Survey (MEES).
The impact was immediate and predictable: As soon as the interview was published, the price of Brent crude dropped by more than 2 percent to below $60 per barrel. US crude also was down significantly. Overall, oil prices have dropped more than 45 percent in the past six months.
On Nov. 27, OPEC, influenced by Saudi Arabia, decided to maintain oil production at 30 million barrels a day – a level it set nearly two years ago – despite the oil glut caused in large part by spikes in US and Canadian production.
As he has before, al-Naimi told MEES that OPEC has shifted its strategy from keeping prices as high as traffic allows to maintaining and recovering market share. Just one of many examples is hydraulic fracturing at US shale-oil sites, which has made Americans almost self-sufficient in oil supply. Once upon a time the United States was OPEC’s largest customer.
“As a policy for OPEC – and I convinced OPEC of this – even [OPEC Secretary General Abdalla Salem] al-Badri is now convinced [that] it is not in the interest of OPEC producers to cut their production, whatever the price is,” al-Naimi told MEES, the influential weekly energy publication.
In fact, al-Naimi said, the price of oil may never reach the $100 level, about where it was when the price slide began in June.
“It seems like an all-out strategy on their part to finish all the weak players in the market who can’t survive at sub-$60 or even sub-$50 oil,” John Kilduff, partner at New York energy hedge fund Again Capital, told Reuters.
This reflects a comment al-Naimi made at an energy conference in Abu Dhabi on Dec. 21. “The best thing for everybody is to let the most efficient producers produce,” he said.
The US oil industry appears to be one target of al-Naimi's strategy because many analysts believe that oil extraction using expensive fracking isn't profitable if the price of oil drops to $60 per barrel. But in the MEES interview, the Saudi minister implied, but didn't state outright, that another target is Russia.
“[The OPEC strategy] is also a defense of high-efficiency producing countries, not only of market share,” al-Naimi said. “We want to tell the world that high-efficiency producing countries are the ones that deserve market share. That is the operative principle in all capitalist countries.”
He then indirectly zeroed in on Russia: “The problem with old fields around the world is that they need continuous investment in new wells, and they cannot shut old wells, because if they do, they will not come back up. So they are wary in that respect, particularly in West Siberia, where they have been producing for a long time and the wells there are declining.”
By Andy Tully of Oilprice.com:
Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com