Return to $100 oil unlikely soon, says Saudi Opec governor
Oil is unlikely to rebound to $100 any time soon because higher prices would spur more output and prolong a glut, said Mohammed Al-Madi, Saudi Arabia’s Opec governor.
Oil prices at that level “will let the high-cost producers come back again,” Mr Al-Madi said at a conference in Riyadh on Sunday. Saudi Arabia, the world’s biggest oil exporter, is pumping at a near-record level of about 10 million barrels a day, oil minister Ali Al-Naimi said at the conference.
Brent, a global oil benchmark, fell almost 50 per cent in the past year as Saudi Arabia and others in Opec chose to protect their market share over cutting output to boost prices. While US producers have idled rigs for 15 consecutive weeks, output is still running at its highest level since at least 1983.
“Shale-oil companies are one of the high-cost producers that benefited from high oil prices,” Mr Al-Madi said. “We’re not against shale oil. We welcomed shale oil, but it’s not fair for high-cost producers to push low-cost producers out of the market.”
Saudi Arabia can meet demand from any customer, and while global consumption is improving, there isn’t enough need to raise the nation’s production capacity beyond its current level of 12.5 million barrels a day, Mr Al-Naimi said.
Opec’s role in the oil market hasn’t been undermined by the drop in prices since its November 27 meeting in Vienna when it chose market share over production cuts, Mr Al-Madi said. Brent for May settlement slid 47 cents to $54.85 a barrel on the London-based ICE Futures Europe exchange on Monday at 12.37am Singapore time.
Crude dropped about 30 per cent since Opec signalled it would leave shale producers and other suppliers to bear the brunt of the glut. Opec pumps about 40 per cent of the world’s oil, and Saudi Arabia is its biggest producer.
“Everyone must join if we want to improve prices,” Mr Al-Naimi said. “Why should they join? Because it’s not right that one gains at the expense of the other.”
Saudi Arabia reduced output in the 1980s to support prices, Mr Al-Naimi. “I was responsible for production at Aramco at that time, and I saw how prices fell, so we lost on output and on prices at the same time,” he said. “We learned from that mistake.” Saudi Arabian Oil Company is the state oil company known as Saudi Aramco.
“In 1998, we managed to get non-Opec to join us for a cut, and prices recovered,” Mr Al-Naimi said.
Mr Al-Madi said oil prices should be determined by supply and demand. “If Opec could have controlled the prices it would have done so, but it is not in the interest of Opec to control the prices,” he said. “It is OPEC’s interest to achieve balance in the market.”
The world needs $40 trillion of oil investments in the next two decades to meet growing demand led by emerging nations, Mr Al-Madi said. Demand will grow 1 million barrels a day every year for the next 15 years to about 111 million barrels a day, Nasser Al-Dossary, Saudi Arabia’s Opec national representative, said at the same conference on Sunday.
Saudi Arabia produced 9.85 million barrels of crude a day in February, the most since September 2013, according to data compiled by Bloomberg. US output reached 9.42 million barrels a day this month, the highest rate in weekly Energy Information Administration data going back to 1983.
“If producers don’t keep investing now, we will have problems in 20 years,” Mr Al-Madi said.
Saudi Arabia holds a “big role” to keep unity within the Opec, which supplies about 40 per cent of the world’s oil, Mr Al-Madi said. In the past 55 years, Opec and non-Opec producers cooperated on production cuts 19 times. Russia, which isn’t part of Opec, didn’t always follow through when cuts were promised, he said.
The Kuwait oil minister Ali Al-Omair said at the same conference he would welcome an agreement with non-Opec producers to cut output.
Opec producer Algeria is seeking to coordinate a global response from outside the group to tumbling prices, Algeria Press Service reported March 17, citing energy minister Youcef Yousfi. Opec members are not eager to cause prices to fall because it hurts their economies, Mr Al-Omair said.
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Published: March 23, 2015 04:00 AM