Posted on 02/24/2016 5:22:59 AM PST by xzins
Saudi Arabia has ruled out a deal by major producers to cut oil output and warned high-cost operators such as US shale drillers to trim costs or go bust in a stark message that triggered fresh pressure on crude prices.
Saudi oil minister Ali al-Naimi said a lack of trust between the world's biggest producers meant a cut in production "is not going to happen". He said the kingdom would instead push for a co-ordinated production freeze to help balance a market swamped with an excess of crude which has taken oil prices to their lowest level in more than a decade.
"There is less trust than normal," Mr Naimi told energy executives in Houston. "Not many countries are going to deliver. Even if they say they will cut production, they will not deliver."
Internationally traded Brent crude dropped $1.33 a barrel to $33.35 after Mr Naimi's remarks on Tuesday, while the US marker slid $1.54 a barrel to $31.85.
The minister was speaking at an annual conference of US energy industry leaders and companies whose prolific exploitation of shale deposits helped topple oil prices, wreaking havoc on the economies of oil-rich countries.
In the absence of co-ordinated action, Mr Naimi said balancing supply and demand should be left to the market.
Mr Naimi, 81, a veteran of booms and busts, denied Saudi Arabia was waging a war with US shale producers. But he said reducing volumes would only provide economic support for expensive oil, such as output from the US or the oil sands of Canada.
"The producers of these high-cost barrels must find a way to lower their costs, borrow cash or liquidate," Mr Naimi said at the IHS CERAWeek conference.
"It sounds harsh, and unfortunately it is, but it is a more efficient way to rebalance markets. Cutting low-cost production [such as Saudi Arabia's] to subsidise higher-cost supplies only delays an inevitable reckoning," he added.
Oil producers are at war with speculators but they have been left speculating themselves over the future of their precious commodity after a unique summit, analysts said. Government ministers and traders alike are anxiously waiting to see which way prices go in coming weeks after Sunday's summit of consumers and producers, which Saudi Arabia called in response to the doubling of the cost of a barrel of oil over the past year to almost 140 dollars.
Market forces are certainly winners from the shift of power
Mr Naimi's remarks come a week after Saudi Arabia joined Russia, Qatar and Venezuela in a provisional output "freeze" if other large producers also agree.
The announcement, which was the first sign of co-operation between producers within and outside the Opec cartel, raised hopes of a move toward action that would curb an oversupply of more than 1m b/d.
Mr Naimi called the freeze the "beginning of a process", and said he sought to meet again with other big producers in March in hopes that they would join.
Senior Gulf officials have said in the past week an agreement to restrain production could be a prelude to further action in the form of production cuts, an idea Mr Naimi appeared to distance himself from.
Oil traders have been more sceptical, noting Opec members Iran and Iraq have not joined the accord.
The producers of these high-cost barrels must find a way to lower their costs, borrow cash or liquidate
Bijan Zanganeh, Iran's oil minister, said on Tuesday that the push for a freeze was "laughable", according to a local news agency. Iranian officials have called on countries such as Saudi Arabia, which have ramped up production over the past year, to curb output.
The last time Mr Naimi spoke at the annual conference, in 2009, crude prices were plummeting amid a financial crisis. Then, Opec slashed production by millions of barrels a day.
Today the cartel — led by Saudi Arabia — has been pumping freely in an effort to knock out higher-cost rivals. The kingdom's production has surpassed 10m b/d for almost a year.
The minister said that after oil tumbled in 2014 he tried to bring together producers from inside and outside of Opec to seek consensus. But there was "no appetite for sharing the burden," he said.
Executives in Houston sounded resigned to a market where Opec would no longer throttle back supplies.
Brian Ferguson, chief executive of Cenovus Energy, an oil sands producer in Canada, said earlier in the day: "By definition, we don't have an oligopoly that's balancing to solve for price. Supply and demand will solve for price."
Saudi Arabia pretty much admits they are at war with US shale/frackers
Even tells them to cut/borrow/liquidate
I have a feeling that immediately after the Saudis take on the IRG in Syria, the price of oil will go up. Because at that moment, those rockets we see being tested will effectively cut off Saudi Oil.
The Sauds can’t keep it up forever and the frackers and oilsand producers will just keep getting better at it.
Iran made
the situation worse...thanks to obama
Since Iran’s and Saudi Arabia’s costs are a government enterprise, they simply need to get more for taking out of the ground than they put into it, and they can even run at a production loss.
Huh?
This is why oil prices are so low. They are trying to put US energy producers out of business.
This is a TRADE WAR and we need to be fighting it.
Normally I am AGAINST government intervention in free trade- but when another country manipulates the economy we have to manipulate it back.
I am not sure I understand enough about the oil industry to know a solution- but adding a tariff to imports would decrease our debt, and have the effect of canceling out their strategy.
If they win this trade war and put US energy manufacturers out of business we will WISH for $100 a barrel oils. They will go to $200 a barrel
I can't find that quote in the original that I copy/pasted.
I have no idea where it came from....the entire paragraph.
That's weird. I never went to the link because it seemed that you posted a complete and clean version of the article.
Saudi oil production has been relatively flat the past few years. It is increased production from the U.S. and other countries that has raised the worldwide supply of oil. The Saudis don’t have the control over world supply that they used to have. They are caught on the horns of a dilemma, because they are so dependent on oil revenue to fund their government. In the current environment, if the Saudis unilaterally either cut production or increase it, they will likely lose revenue.
[and 85-90% of the world's Muslims are Sunni, IOW, Shiites kill twice as many per capita]
We should’ve leveled Saudi Arabia a long time ago
I thought I did. I have no idea how that paragraph was in my copy/paste. They did an Overwrite of an old template that had hidden text or something like that? I’m truly puzzled.
Sorry I didn’t catch it pgkdan. And thank you FOR catching it.
There is an economic reality that some in the press can’t seem to understand. There is a large quantity of shale oil in the ground, already discovered, and there is nothing Saudi Arabia, or any other entity can do to “undiscover” it. It certainly costs more to pump it out than it does to pump Saudi oil, so as long as the Saudis sell theirs for less, it will remain unproduced. As soon as the world oil price inches up enough to make it profitable again, this oil will be produced. This puts a ceiling on world oil prices that is significantly lower than oil has been sold for in the past. The result is nothing but good for oil users.
Saudis hope that the frackers go broke, that the big oil industry owned by them buys it up, and that they can go back to extorting the world.
THAT is where protectionism should jump in in some way. We know that is their intention and that it is counter to our own national security.
At this time the only way oil prices will increase is for an economic recovery in China, Europe and the USA which will increase demand, using up the excess thus driving up prices.
I’ll bet Canadian oil sands are dead for a while.
I agree with you. They are not our friends and have been up to no good for decades.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.