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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Saudis Won’t Cut Oil Production On Their Own

Saudi Arabia is going to do whatever it takes to stabilize the oil market, but it can’t and won’t do it alone without a collective decision from the OPEC and non-OPEC deal participants, Saudi Energy Minister Khalid al-Falih said on Wednesday.

“We are going to ... do whatever is necessary, but only if we act together as a group of 25,” Reuters quoted al-Falih as telling reporters in Nigeria’s capital Abuja, referring to the 25 Saudi-led OPEC nations and Russia-led non-OPEC producers that have been tweaking oil production to stabilize the market for nearly two years.

Saudi Arabia and Russia steered the group in June to start pumping more oil to offset what was expected to be a steep drop-off of Iranian oil supply with the U.S. sanctions. But after the United States granted waivers to eight of Iran’s key oil buyers, oil prices began to slide, dragged down by fears of oversupply and of slowing global economy and oil demand growth.

Now the Saudis need higher oil prices than the current $60 Brent Crude, but Riyadh’s earlier idea of a sizeable decisive cut to be announced at the OPEC+ meeting next week could be trumped by President Trump’s recent comments about oil prices—“Thank you to Saudi Arabia, but let’s go lower!”—and his support for the Kingdom and its Crown Prince Mohammed bin Salman amid growing calls in the U.S. to punish the Saudis for the murder of Jamal Khashoggi.

“As Saudi Arabia we cannot do it alone, we will not do it alone,” al-Falih said on Wednesday, referring to a production cut, adding that “I think people know that leaving the market to its own devices with no clarity and no collective decision to balance the market is not helping.”

Related: Mexico’s Oil Crisis Deepens

While Saudi Arabia is airing the idea of a new production cut, its key non-OPEC ally in the deal, Russia, is less convinced that it could take part in another reduction, or at least so it lets the market to believe.

Russia’s energy ministry is discussing potential oil production cuts with local producers and will continue talks to come up with a position by the OPEC/non-OPEC meeting in early December, Energy Minister Alexander Novak said last week. Another meeting with Russian oil companies was held on Tuesday, Reuters reported on Wednesday, citing two sources who knew that such a meeting was taking place.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh G Salameh on November 29 2018 said:
    If Saudi Arabia’s oil minister Khalid al-Falih is now saying that his country will not cut production without a collective decision from the OPEC+ members, then he should have consulted them before he succumbed to President Trump’s pressure on his country and raised oil production in collaboration with Russia against the wishes of the overwhelming majority of OPEC members in their meeting in June. The Saudis sacrificed then their national interests and those of the OPEC members to please President Trump.

    Russia is not in a rush to oblige. Since its diversification drive immediately after the 2014 oil price crash, the Russian economy could happily live with an oil price of $40 or less.

    On the other hand, Saudi Arabia needs a price far above $80 to balance its budget. However, the Saudis find themselves between a rock and a hard place. They feel obliged to cut production in support of higher oil prices but at the same time they need to respond to President Trump call not to cut production having stood by them in the tragic incident of the murder of the Saudi journalist.

    OPEC need not cut any production. If the global oil market swung into excess after Saudi Arabia and Russia added 650,000 barrels a day (b/d) to the market in June, then withdrawing these 650,000 b/d from the market will be the answer. The overwhelming OPEC members could be against any new cuts. Instead, they will demand that Saudi Arabia and Russia withdraw the 650,000 b/d they jointly added to the market and return them to the original 1.8 mbd cut under the OPEC/non-OPEC agreement. In so doing, the glut in the market will ease.

    Having made a grave mistake in June by adding 650,000 b/d to the market, Saudi Arabia and Russia are in no position to ask OPEC members for new cuts.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Peter on November 30 2018 said:
    King MbS would have been deposed and beheaded had he not raised oil production. His hold on the kingdom is tenuous. The best bet is on continued over production and lower oil prices. Both Saudi Arabia and Russia need higher oil prices or higher production to finance their socialist welfare states. The USA is producing 11Mbbl/day and continues to expand production. USA can conceivably produce 20Mbbl/day from shale. Pipeline capacity and bank loans are the limiting factors. By comparison Russia and Saudi Arabia each produce nearly 11Mbbl/day.

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