Suhail Mohamed Faraj al-Mazrouei, the oil minister for the United Arab Emirates, says it isn’t OPEC’s responsibility to cut oil production to prop up prices. Instead, he said, the non-OPEC producers who have helped create the current oil glut must adjust their own production levels to stabilize prices at a reasonable level.
No one but al-Mazrouei and his closest associates knows exactly what he hoped to accomplish with the statement. What he did accomplish was to intensify the concern over oil prices and send them down even further, below $45 per barrel on Jan. 13.
“[OPEC] cannot continue protecting a certain price. That is not the only aim of OPEC,” al-Mazrouei said at an energy conference in the UAE capital, Abu Dhabi. “We are concerned about the balance of the market, but we cannot be the only party that is responsible to balance the market.”
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The oil cartel has in the past raised or lowered production to keep oil prices at reasonable levels – until it meeting nearly six weeks ago at OPEC headquarters in Vienna, when it decided to keep its production cap at 30 million barrels a day.
That was widely seen as a challenge to shale producers, particularly those in the United States, whose oil, while more expensive to extract, was cutting deeply into OPEC’s market share. Al-Mazrouei, evidently agreeing with the cartel’s strategy, said shale producers must reduce their own production to stabilize oil prices from all producers to reasonable levels between $60 and $80 per barrel.
To expect OPEC to act alone to stabilize prices would be folly, al-Mazrouei told the conference. “We aren’t going to act irrationally because of the drop in the oil prices,” he said.
Al-Mazrouei also echoed comments by Saudi Oil Minister Ali al-Naimi in an interview with the Middle East Economic Survey published on Dec. 22 that OPEC will never cut production because its members produce oil and gas efficiently. Instead, al-Naimi said, cutting production is the responsibility of inefficient energy producers, including US shale drillers.
“Everyone needs to take measures, but those who are producing the most expensive oil – the rationale and the rules of the market say that they should be the first to pull or reduce their production,” al-Mazrouei said. “If the price is right for them to produce, then fine, let them produce. If the price is not right, then they will reduce.”
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Since late June 2014, the price of European Brent crude has plunged by 60 percent from around $115 per barrel to just over $45 on Jan. 13,while US crude has fallen to nearly $1 less – both at their lowest levels since the spring of 2009.
The boom in US shale production isn’t the only reason for the global oil glut. There also has been weaker demand for oil in Asia and Europe, whose economies have been cooling off in recent months. And OPEC, still producing oil at a level set three years ago, has been sporadically offering oil at generous discounts to US, European and Asian customers in an effort to reclaim lost market share.
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In fact, al-Mazroui said OPEC’s strategy isn’t aimed to drive shale oil out of the market altogether, calling it an important element in the global energy picture. “Shale oil producers are very important for the market supply, and we all need them to stay,” he said.
By Andy Tully of Oilprice.com
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