Prices have no place to go but down unless the taps are tightened
RIYADH, Saudi Arabia/ Troy Media/ – “It is increasingly clear that we have begun a new chapter in the history of the oil markets,” the International Energy Agency (IEA) stated in its November oil market report. The world’s oil supply, it said, is outstripping projected oil demand.
The result is that prices have no place to go but down, unless the taps are tightened.
But is the OPEC ready to do so?
All sort of projections – from a large OPEC production cut to a small cut to none at all – are being bandied about, with Riyadh in the crosshairs.
Will there be a cut in Saudi output? Is Riyadh in a battle for market share, willing to let the prices fall to both hamper the growing shale business in the United States and to make life for Moscow and Tehran as miserable as possible?
In Russia, the idea of a Saudi-U.S. plot against Moscow is already gathering credence as its economy struggles under the effects of low oil prices and Western sanctions.
For the most part, Riyadh has been silent on all of this. However, with OPEC ministerial talks to begin soon in Vienna, it is becoming clearer that Saudi Arabia is for stable markets.
Saudi oil policy has been the “subject of a great deal of wild and inaccurate conjectures in recent weeks.” Saudi Oil Minister Ali Al-Naimi was quoted as saying. “We do not seek to politicize oil . . . For us, it’s a question of supply and demand; it’s purely business.”
But it is becoming apparent that Riyadh is not willing to shoulder the burden of stabilizing oil markets alone. It has let its fellow OPEC member know they all need to bear responsibility for the stabilization of the markets, former Saudi oil ministry official Mohamed Al-Sabban was quoted as saying, insisting that unless agreement is reached on this fundamental issue, Saudi Arabia will continue to defend its market share.
Concern over the state of the oil markets is spreading. Kuwait’s cabinet and its Supreme Petroleum Council held an “extraordinary” joint meeting last week to consider measures to stop the slide in prices. The meeting “discussed steps that have to be taken on all levels . . . including having consultations with fellow OPEC member states for maintaining interests of all parties.” This was despite the earlier Kuwait statement expressing confidence on the market situation.
And in a statement last week Iran’s oil minister, Bijan Namdar Zanganeh,, criticized some countries for “trying to justify keeping oil production at the current level – which were set before countries such as Iran were allowed to return to selling oil in the global marketplace.”
Zanganeh has been busy visiting the Gulf Arab states of Qatar, Kuwait and the United Arab Emirates, as well as holding talks in Tehran with Rafael Ramirez of Venezuela, to discuss the situation. He has also indicated that he would talk with Saudi Arabia about market share when OPEC meets this week in Vienna. Venezuela, Ecuador and Libya have also all been saying that a cut was appropriate.
Russia has even said it’s willing to cooperate with Saudi Arabia on the state of the oil market, but has avoided maing a commitment to limit output to reverse plunging prices. In fact, in a meeting last Monday in Moscow between their foreign ministers, Saudi Arabia and Russia, which together produce 25 per cent of global oil, agreed the market “must be free of attempts to influence it for political and geopolitical reasons,” Russian Foreign Minister Sergey Lavrov said. Where supply and demand are “artificially distorted,” oil exporters “have a right to take measures to correct these non-objective factors,” he added.
It has also been reported that Rosneft Chief Executive Igor Sechin would be flying to Vienna on Nov. 25 for an energy market conference, just two days before the OPEC meeting. The surprise announcement raised speculation that Sechin, a close ally of Russian President Vladimir Putin and a former deputy prime minister, would use the meeting as a cover to meet OPEC ministers, exploring common ground.
So all eyes are now focused on Vienna where the direction of OPEC for the coming months and years will soon be set.