Oil's not well at OPEC


Submitted by alvin on Fri, 2016-03-11 13:15 Saudi Arabia: When the Saudi oil Minister Ali Naimi stood up to deliver his eagerly awaited talk at the packed ballroom in Houston during the IHS CERAWeek, his message was blunt: OPEC is more than happy to ride out cheap crude prices until higher-cost producers are pushed out of the market. The kingdom had no plans to cut its output to boost prices, he reiterated, underlining Saudi Arabia was prepared to withstand $20 crude if needed to thin the herd. “We don’t want to, but if we have to, we will,” he said. And he further said that a coordinated production cut by OPEC and non-OPEC exporters was "not going to happen - because not many countries are going to deliver". "Not many countries are going to deliver. Even if they say they will cut production, they will not deliver, so there is no sense in wasting our time seeking production cuts," he added. And that the proposed freeze in output at January levels, would require "all the major producers to agree not to add additional barrels." That is not forthcoming. Yet there was reason behind the outburst from Minister Naimi. Just hours before Naimi spoke at the jam packed ballroom, Iranian oil minister Bijan Zanganeh had underlined that Iran had no interest in restraining production after sanctions against it were lifted, calling a joint Russian/Saudi proposal for major exporters to freeze output "laughable". "Some of our neighbors have increased their production to 10 million barrels a day... and now they have the nerve to say we should all freeze our production together," Iranian news agency ISNA quoted Bijan Zanganeh as saying. "So they should freeze their production at 10 million barrels and we should freeze ours at 1 million barrels - this is a laughable proposal," he added. Naimi had to respond. And he did. In his presentation, minister Naimi also made it clear that the oil supply glut was not caused by Saudi Arabia, but by high prices that caused "every barrel on earth" to be produced. And now with the battle on, he told Daniel Yergin of IHS in plain terms that “inefficient, uneconomic producers will have to get out, that is tough to say, but that's fact”. Prices in $100 a barrel range encouraged inefficient producers to increase output, and those barrels will have to leave the market first. “It sounds harsh, and unfortunately it is. But it’s the most efficient way to rebalance markets,” said Naimi. And availing the opportunity, while standing before the packed room in Houston, the energy capital of the United States, Naimi also sent out a message of peace and understanding to the shale producers. Contrary to popular belief, the Saudis have “not declared war on shale” or on production from any country or company, he underlined. “Our purpose is not market share. Our purpose is to satisfy customer demand.” And despite the gloom, all around, the industry veteran was not pessimistic. Although philosophical, yet his message to the industry was clear. "I’ve seen oil at under $2 a barrel and at $147, and much volatility in between. I’ve witnessed gluts and scarcity. I’ve seen multiple booms and busts," he emphasised with an insight that few in the industry could boast of today. "These experiences have taught me that this business, and this commodity, like all commodities, is inevitably cyclical. Demand rises and falls. Supply rises and falls. Prices rise and fall." And so would they this time too. This was the message delivered to the 2800 plus delegates who were present to hear what the wise man of the energy industry had to say. But markets are nervous. “Unless we see an even larger than expected fall in non-OPEC oil production in 2016 and/or a major demand growth spurt, it is hard to see oil prices recovering significantly in the short term,” the Paris based IEA said in a report last week.