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“No one can set the price of oil,” Saudi Oil Minister Ali al-Naimi says. “It’s up to Allah.”
Was that comment, made in an interview May 5 on CNBC, merely evasion or an expression of humility?
Al-Naimi is arguably one of the most influential player in the world energy market. After all, it was he who persuaded OPEC at its November meeting not to cut production to help support the price of oil, maintaining an oil glut that eventually reduced its value by half.
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OPEC’s production limit remains at 30 million barrels per day, a ceiling that’s three years old. But because of generous production in non-OPEC countries, including the United States and Canada, combined with a decline in demand, particularly in Asia, the average global price of oil has plummeted from more than $110 per barrel in late June 2014 to half that in January.
Yet there’s some evidence that prices are starting to rebound, and in a month, on June 5, the cartel will meet again at its Vienna headquarters, presumably to discuss its next step in restoring oil prices and regaining what it considers to be its rightful market share. But the rebound is shaky.
For example, on May 4, the price of benchmark Brent crude rose to $67.10 per barrel, its highest level of 2015. The next day, though, it sagged closer to $66. And US crude oil declined by 22 cents to $58.72 per barrel.
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Yet Saudi Arabia, already the world’s biggest oil producer, is extracting oil at a near-record rate and plans to produce even more to meet what it sees as rising demand in Asia. Al-Naimi addressed this potential in a speech in Beijing on April 27.
“As the Asian population grows and as the middle class expands, so the demand for energy will increase,” the Saudi oil minister said. “Oil will retain its preeminent position and Saudi Arabia will remain the number one supplier.”
But what of Iran? Officials in Tehran seem confident that Western sanctions over its nuclear program will be lifted in the coming months, and its oil minister, Bijan Zanganeh, urged OPEC to cut production to make room for his country’s full return to the global oil market.
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“Even the most conservative OPEC member states do not believe that OPEC production should exceed 30 million barrels per day,” Zanganeh said in Tehran on April 14, “and we believe that this amount should be cut by at least 5 percent.” That would be a cut of about 1.5 million barrels a day.
In the CNBC interview, al-Naimi said he was “not worried at all” about Iran’s potential return to the market, even though it might add to the glut on the market. In December he said he was “100 per cent not pleased” with oil’s low price, but said he was confident it would rise again. Evidently he’s maintaining that optimistic view.
That’s not what the US Energy Information Administration expects. In its short-term energy outlook (STEO) issued April 7, the agency wrote, “Lifting sanctions [on Iran] could substantially change the STEO forecast for oil supply, demand, and prices by allowing a significantly increased volume of Iranian barrels to enter the market. If and when sanctions are lifted, the baseline forecast for world crude oil prices in 2016 could be reduced $5-$15/barrel (bbl) from the [current] level.”
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com