Saudi Arabia’s Oil Minister Ali al-Naimi talks to journalists at the Opec headquarters in Vienna. Naimi spoke about market share rivalry with the US and those who wanted a cut understood that there was no option to achieve it because of Saudi Arabia’s stance, a source said.
Reuters
Saudi Arabia’s oil minister told fellow Opec members they must combat the US shale oil boom, arguing against cutting crude output in order to depress prices and undermine the profitability of North American producers.
Ali al-Naimi won the argument at Thursday’s meeting, against the wishes of ministers from Opec’s poorer members such as Venezuela, Iran and Algeria which had wanted to cut production to reverse a rapid fall in oil prices.
They were not prepared to offer big cuts themselves, and, choosing not to clash with the Saudis and their rich Gulf allies, ultimately yielded to Naimi’s pressure.
“Naimi spoke about market share rivalry with the US. And those who wanted a cut understood that there was no option to achieve it because the Saudis want a market share battle,” said a source who was briefed by a non-Gulf Opec minister after Thursday’s meeting.
Oil hit a fresh four-year low below $72 per barrel yesterday. A boom in shale oil production and weaker growth in China and Europe have sent prices down by over a third since June.
“You think we were convinced? What else could we do?” said an Opec delegate from a country that had argued for a cut.
Secretary-general Abdullah al-Badri effectively confirmed Opec was entering a battle for market share.
Asked on Thursday if the organisation had a answer to rising US production, he said: “We answered. We keep the same production. There is an answer here”.
Opec agreed to maintain — a “rollover” in Opec jargon — its ceiling of 30mn barrels per day, at least 1mn above its own estimate of demand for its oil in the first half of next year.
Analysts said the decision not to cut output in the face of drastically falling prices was a strategic shift for Opec.
“It is a brave new world. Opec is clearly drawing a line in the sand at 30mn bpd. Time will tell who will be left standing,” said Yasser Elguindi of Medley Global Advisors.
The Opec delegate from one of the countries that wanted a cut, said: “Opec has lost credibility,” and added: “I don’t know how practical it is to try to kick shale out of the market.”
Several Opec ministers who wanted a cut left the meeting room visibly frustrated and kept silent for several hours although when they spoke later they said they accepted the decision.
“We are together,” said Venezuelan Foreign Minister Rafael Ramirez when asked whether there was a price war within Opec.
“Opec is always fighting with the US because the US has declared it is always against Opec... Shale oil is a disaster as a method of production, the fracking. But also it is too expensive. And there we are going to see what will happen with production,” he said.
A Gulf delegate said Naimi had reassured members that the oil price would recover as demand will ultimately pick up. But he insisted that if Opec cut output it would lose market share.
“Reaching a final decision took a lot of time convincing the others,” said another delegate. Several analysts and oil executives have suggested it would take many months to have an impact on US oil production.
Even some Gulf delegates said they were not convinced Naimi’s gamble would work. One said: “If they are really after US shale, how much would this rollover slow them (US producers) down?”
US crude down 7%; new low likely
US crude fell 7% on Opec’s decision to not cut output, but light trading yesterday after the US Thanksgiving Day holiday meant there could be more losses when markets return to full strength next week, traders said.
West Texas Intermediate (WTI) light US crude hit a four-and-half-year low of $67.75 a barrel overnight after Saudi Arabia blocked calls on Thursday from poorer members of the Organisation of the Petroleum Exporting Countries to reduce production. US markets were officially closed on Thursday for Thanksgiving, with only electronic trading.
Traders said if WTI takes out the May 2010 low of $64.24, it could technically be headed for a test below $60, toward the low of $58.32 set on July 2009.
“There’s a notion that yesterday’s selling was overdone, but not everyone is fully back to work yet after Thanksgiving,” said John Kilduff, partner at energy hedge fund Again Capital in New York. “WTI could certainly be down a couple of dollars more next week, and test newer lows from there.”
US crude’s front-month contract was down $5.42 at $68.27 a barrel at 11:56am EST (1656 GMT). The drop of more than 7% was the biggest daily fall since 2011.
The front month for benchmark North Sea Brent crude was 40 cents lower at $72.18, after falling earlier to $71.12, a low since July 2010. “We are seeing continued oversupply. I think $70 a barrel will be the new norm,” said Bill Hubard, chief economist at Markets.com, referring to Brent.
With November trading in its final session, Brent was headed for a 15% loss on the month, or the steepest monthly decline since 2008. It has lost over 30% since June, falling from above $115, as increasing North American shale oil output helped create a glut amid sluggish global growth.
