Saudi Arabia hardens line on prices
For decades, Saudi Arabia was the voice of moderation within Organization of Petroleum Exporting Countries (OPEC), pushing back against the urging of members like Venezuela and Iran for higher oil prices. That role seems to be shifting.
Thanks to OPEC-led production cuts, crude prices are double their level two years ago and bloated oil stockpiles are almost back to normal. Yet Saudi Energy Minister Khalid Al-Falih wants to go further. Producers should keep cutting for the whole year, even if it causes a small supply shortage, AlFalih said. “If we have to overbalance the market a little bit, then so be it,” he told reporters in Riyadh last week.
Saudi Arabia faces unprecedented pressures as Crown Prince Mohammed Bin Salman embarks on a programme of sweeping economic reforms known as “Vision 2030” and includes the potentially recordbreaking initial public offering of its state oil company. “They are definitely not a price dove anymore,” said Mike Wittner, head of oil market research at Societe Generale SA. “They have to think about their social costs, about Vision 2030, about the Saudi Aramco partial IPO or private placement. Al-Falih’s statement last week could not have been much clearer.” Previously content with oil at $60 a barrel, AlFalih is now seeing $70 as the level where crude prices should trade, according to a person familiar with the matter, who asked not to be identified because the information was private.
For the past year, the OPEC and Russia — once fierce oil-market rivals — have led a coalition of 24 producers in output cuts aimed at clearing the supply glut unleashed by US shale-oil drilling. Their objective of reducing oil inventories to their five-year average is finally in reach, but the two energy giants now suggest modifying that goal as they encourage fellow producers to keep supply constrained.