"We Are Not Going To Cut"
Saudi Arabia issued its boldest statement yet on Sunday regarding its stance on the oil market's largest slump in years: it will not cut output even if non-OPEC countries choose to do so.
Saudi Oil Minister Ali Al-Naimi told reporters at a conference in the UAE, "If they [non-OPEC nations] want to cut production they are welcome: We are not going to cut, certainly Saudi Arabia is not going to cut."
Saudi Oil Minister Ali Al-Naimi
Reuters reported him as adding that he was "100 percent not pleased" with prices but they would improve, although he said he was unsure when.
He laid the blame for the oil price plunge with "speculators" and a lack of cooperation from non-OPEC producers.
Sunday's remarks marked the second time in three days that Saudi Arabia has indicated it would not downwardly adjust output levels, preferring to let the oil market stabilize on its own accord.
UAE, Kuwait Echo Saudi
The tone of Ali-Al-Naimi's remarks were echoed by the oil ministers of the UAE and Kuwait at the conference as well.
The Kuwaiti Oil Minister Ali al-Omair said OPEC did not need to reduce production and would not convene for an emergency meeting prior to its scheduled meeting in June.
And UAE Oil Minister Suhail Bin Mohammed Al-Mazroui urged all producers not to raise their oil production in 2015, remarking that this would rapidly steady prices.
The fact that Saudi, the UAE and Kuwait are on the same page is not surprising. These three countries hold a total of more than $2 trillion in their sovereign wealth funds. In other words, most analysts agree that they can weather the price downturn...for now.
When reporters asked Al-Naimi about potential cooperation between OPEC members, which include the world’s lowest-cost producers, and non-member nations, the Saudi Minister said, “The best thing for everybody is to let the most efficient producers produce.”
But Other Producers Can't Afford Lower Prices For Long
Revisiting the following comment by Al-Naimi- "We are not going to cut, certainly Saudi Arabia is not going to cut"- notice what is implicit here.
Saudi is certainly "not going to cut." However the assertion that "we (meaning fellow OPEC members) are not going to cut" is not categorically stated here.
As noted above, Saudi, Kuwait, and the UAE can in the short-term afford not to cut output. But fellow OPEC members such as Venezuela and Iran are not so easily insulated from the effect of lower prices.
With the price of Venezuela's market basket of crude and petroleum products hovering around $60/barrel recently, many analysts estimate that the government needs a $120/barrel price to avoid scaling back or delaying spending commitments.
Iran needs oil prices well north of $100 per barrel to balance its budget, especially since Western sanctions have made it much harder to export crude. If oil prices keep falling, the Iranian government may need to make up revenues elsewhere.
In non-OPEC Russia, the ruble's free fall has thrown the country into a currency crisis. O&G revenue represent more than half of the Russian federal budget and two-thirds of its export revenue (approximately 300 billion annually). The IEA estimates that 68% of Russia's foreign currency earnings are sources from the oil-export business, and about half of its annual budget is underwritten by the industry.
Additional info from Reuters:
This is blunt statement very telling:
It is apparent that Saudi Arabia is intent on not losing market share, as they have in the past.
Survival of the fittest. Saudis are the strongest in OPEC, and want to weed the herd, both inside and outside of OPEC. They have the cash reserves to ride this out for a while, waiting for the least efficient producers of the world to implode. Looks like this is going to get very messy.
Well said, William.
Better pay close attention. Saudi Arabia has been very consistent that the only thing that counts is their production level. You have to start believing that MAYBE they mean it! If they are actually willing to defend production level, regardless of price, it can be a very long and tough year for the industry. Remember my post, "Is $20 Oil Possible"? It looks more and more likely.