Saudi Arabian oil minister Ali al-Naimi said today that it would maintain production at current levels but if some new customer showed up in the oil patch the Kingdom is prepared to raise production. He appears to be playing hard ball and is making his intentions very plain regarding the near term course of energy prices.
Via the FT:
Saudi Arabia is prepared to raise output if new customers emerge for its oil, its energy minister has said, in the latest indication that the world’s largest producer is not prepared to cut production.
Ali al-Naimi told the al Hayat newspaper that the Gulf nation — which is Opec’s de facto leader — would maintain its 9.7m barrels a day of output “unless a new client comes along and then we may increase it”.
The remarks are the latest signal by the world’s largest oil exporter that it is not going to cut production to bolster prices, which rallied on Monday but remain close to five-year lows.
Amid growing supply from the US, sustained output from Opec and a slowdown in global demand, Mr Naimi said it was unlikely the market would witness $100-a-barrel oil again.
Mr Naimi, who has been criticised domestically for his failure to communicate properly the thinking behind the decision to maintain Opec production levels at 30m b/d at the group’s recent meeting in Vienna, reiterated that Saudi Arabia’s oil policy is based solely on economics and not politics.
Any conspiracy theories were “unfounded”, he said.
The drop in oil prices has eaten into the country’s savings and roiled its stock markets. But Mr Naimi said low-cost Gulf producers were able to withstand the falls and stressed prices would improve as some high-cost production declined.
He expressed optimism that prices would improve.
“There are producers who will exit the market. International companies said they would reduce investment plans which means there will not be new exploration and digging, but existing facilities will continue to produce because there are investments based on them.”
Even so, he admitted that while some US shale formations had break-even prices of $80-$90 a barrel, others were as low as $20-$30 a barrel.
“Opec, or more precisely the Opec four of Saudi Arabia, Kuwait, UAE and Qatar, have had a good week,” said David Hufton, of PVM, a brokerage. “They have reminded everyone they still have enormous power over the oil markets. They have demonstrated there is power in creating a surplus as well as in creating a shortage.”
As the market digested Mr Naimi’s comments, oil prices added to Friday’s advance. ICE February Brent rose a further 74 cents to $62.11, while Nymex February West Texas Intermediate added 50 cents to $57.63.
Speculators have increased their bets on rising oil prices to the highest level in four months. Data from the Commodity Futures Trading Commission, released on Friday, showed “managed money” increased its combined holdings of futures and options contracts by 25,233 to 209,327 in the week to December 16.
Analysts warned the oil price rally could prove temporary. “Any oil relief rally is likely to be limited and shortlived, barring a major outage,” said Adam Longson, analyst at Morgan Stanley. “We see too many headwinds that must be addressed.
“More supply is coming in early 2015 (Brazil, US shale, Gulf of Mexico, Canada, Iraq, Russia and west Africa), and supply may take longer to slow than most expect, even with fewer rigs.”