Saudi Arabia is facing internal pressure to cut oil production to boost prices after two years of a crude price war they started.
“The Saudis are going to Algeria for a freeze,” a source within OPEC told Reuters. “More and more ministers are now talking among themselves to evaluate their production position.”
The Kingdom embarked on a policy of increasing production in 2014 to keep oil prices low and push out high-cost producers, like Venezuela and Nigeria. The Saudis also likely refused to cut production to punish U.S. oil companies for unlocking vast new oil and natural reserves through hydraulic fracturing.
But now the Saudis are trying to sell shares in the Aramco, the state-owned oil company, which means they need higher oil prices to entice investors and right their balance sheets. The country’s new oil minister Khalid al-Falih even said oil needs to be above $50 a barrel to achieve a balanced market.
The Saudi-led low oil policy has also cost the Kingdom billions of dollars in lost exports and forced them to dig into their cash reserves to stay afloat. OPEC as a whole has lost hundreds of billions in export revenues.
“A stable oil price at a moderate level would help an IPO. I don’t know if the IPO is the major factor – but it’s certainly a factor,” an insider told Reuters.
“Saudi Arabia does not want to crash the price,” the source said. “Their target indeed would be somewhere north of $50 – $60 or so.”
Falih has been talking to other OPEC members for months, trying to cut a deal on lower production levels, but those talks were complicated by Iran.
Iran said it needed to increase production to make up for all the market share it lost due to years of U.S.-led sanctions.
OPEC officials will meet in Algeria later this month to discuss possible production cuts with Russia. But higher oil prices would also bring U.S. shale drilling back online.
U.S. producers have only gotten more efficient at drilling over the years, and at least one company has said it can frack into Texas’ Permian Basin for as little as $2 a barrel. That’s on par with Saudi production costs.
“Definitely we can compete with anything that Saudi Arabia has,” Scott Sheffield, the CEO of Pioneer Natural Resources recently told Reuters.
“My firm belief is the Permian is going to be the only driver of long-term oil growth in this country,” he said. “And it’s going to grow on up to about 5 million barrels a day from 2 million barrels,” even with oil at $55 per barrel, according to Reuters.
Some North Dakota drillers can afford to drill at oil prices as low as $40 a barrel, but even so, the oil industry was forced to lay off about 170,000 workers since the price plunge in 2014 — though some economists say oil jobs may return soon.
Michael Bastasch is a contributer for the Daily Caller. This content was provided by the Daily Caller News Foundation