RIYADH: Saudi Arabia’s veteran oil minister made clear late last year that the kingdom would no longer prop up the oil market, saying it was tired of cutting output to guarantee $100 a barrel for high-cost rivals.
Ali al-Naimi added that even if oil “goes down to $20” Opec’s largest producer would not change course.
A year on, as Opec ministers prepare to meet next week with oil languishing near $45 a barrel, senior Saudi officials have a different message. In recent weeks, in public forums and private briefings, they have emphasised the dangers of future supply shortages as the oil industry has slashed investment in new projects.
Prices fell further than they ever anticipated, they say, remarks that for many in the oil market imply the Opec kingpin wants the year-long oil rout to come to a close.
Saudi officials say they are not about to reverse the policy that saw them open the taps and prioritise their long-term exports over short-term financial gain. But behind closed doors they say they want prices to stabilise between $60 and $80 a barrel.
That level, they believe, would foster oil demand but not encourage too much supply growth from alternative sources — a goldilocks scenario. Market watchers say that by focusing on the future outlook the kingdom can slowly coax the price higher without abandoning its strategy.
“They have made their point and no one in the world has missed it,” says Nat Kern, at Washington DC-based consultancy Foreign Reports. “Prices have fallen a lot lower than they wanted to go and investment cuts are far steeper than they expected.”
Prince Abdulaziz bin Salman al-Saud, Saudi Arabia’s deputy oil minister and son of the king, has been at the forefront of the shift in messaging. In a speech in Doha this month he warned that the investment needed to ensure future oil supplies could not be achieved “at any price”.
“The scars from a sustained period of low oil prices can’t be easily erased,” he said.
Demand for Opec’s crude is expected to rise next year as production outside the cartel falls — a key pillar of the strategy. But Saudi officials are keen to temper the industry’s response to the price crash after more than $200bn in energy investments have been scrapped.
Mr Naimi said last week that the world will need $700bn in investment over the next decade to meet growing oil demand, which it estimates will increase by at least 1m barrels a day each year.
In many ways, Saudi Arabia is now being forced to present a counter narrative to the oil industry’s new mantra of “lower for longer” prices — that has taken hold as a result of Riyadh’s own policy and is being pushed by influential banks such as Goldman Sachs.
“The Saudis want to warn the market not to overdo it,” says Amrita Sen at consultancy Energy Aspects in London.
