Saudis make surprise oil cut
Saudi Arabia surprised the oil market with deeper production cuts, sending crude prices soaring and predicting that Saudi Aramco, fresh from its initial public offering, will soon surge past the elusive US$ 2- trillion valuation.
After two days of gruelling talks in Vienna that had focused on adjusting the OPEC+ quota and redistributing output cuts more equitably, Energy Minister Prince Abdulaziz bin Salman sent prices soaring with the promise to take the kingdom’s production down to levels not seen on a sustained basis since 2014, according to data compiled by Bloomberg.
Oil jumped as much as 2.4 per cent in New York, and Prince Abdulaziz predicted that Saudi Aramco’s US$ 1.7- trillion IPO valuation would soon soar above the level long coveted by his brother, Crown Prince Mohammed Bin Salman.
“Aramco will be higher than the $ 2 trillion, and they can bet that this will happen,” Prince Abdulaziz said. The state- controlled company would reach that valuation “in a few months” after its shares start trading on Dec. 11, he said.
Aramco didn’t immediately respond to a request for comment about the minister’s prediction.
While a surprise, the move wasn’t unprecedented. Three years ago in the same press room at OPEC’S Vienna headquarters, Prince Abdulaziz’s predecessor as energy minister, Khalid Al- Falih, dropped a similar bombshell on the market by promising to cut substantially below the level it had just agreed with fellow members.
OPEC+, which pumps more than half the world’s oil, agreed in Vienna on Friday to reduce its output limit by 500,000 barrels a day. The deal was initially dismissed by analysts as “housekeeping” or a “nothing- burger” because it simply brought the group’s production target in line with recent levels.
But the Saudi delegation had something else up its sleeve.
“As we moved out of the conference room, I did say: this time it’s going to be different,” Prince Abdulaziz said in a Bloomberg TV interview after the meeting. It was “a common belief and collective belief that we had last night and this morning and this afternoon. I would like to carry on with that spirit.”
On Friday afternoon, as oil prices traded lower and OPEC’S closing press conference was just beginning, the prince revealed the “beautiful news” he’d hinted at previous day.
“We will continue the voluntary cut of 400,000” barrels a day below Saudi Arabia’s official output target, he told reporters. That would bring the total supply cut implemented by OPEC and its allies to 2.1 million barrels a day, a number that even the most bullish analysts and traders hadn’t considered prior to the meeting.
The kingdom will pump 9.7 million barrels a day, he said. That’s a reduction of about 300,000 barrels a day from its output in November and 100,000 below the yearto-date average, according to data compiled by Bloomberg.
Prince Abdulaziz did warn that Saudi Arabia’s voluntary extra cuts were conditional on other OPEC countries meeting their own production promises. Over the past year, several nations, including Iraq, Nigeria and Russia have consistently exceeded their quotas.
To show he meant business about bringing this cheating to an end, Prince Abdulaziz’s opening speech focused on the peril’s of breaking the market’s trust, using religious references to underscore his point.
His final press conference was unusually attended by the ministers of Iraq and Nigeria, who promised to stop overproducing.