Saudis Declaring Victory?
Khalid al-Falih, chairman of state oil company Saudi Aramco, told the World Economic Forum in Davos that current prices would not last, with many smaller producers facing financial difficulties.
"The market has overshot on the low side and it is inevitable that it will start turning up," said Mr Falih, predicting higher prices by the end of the year.
He reiterated that Saudi Arabia, the world's biggest oil exporter, would not cut supplies unilaterally or make way for rival producers.
Cont...
While he called the short-term oil outlook "bleak", Mr Falih said Saudi Arabia, which is considering a stock market flotation of part of Saudi Aramco, would weather the downturn better than many of its rivals.
Saudi Aramco has little debt and pumps almost one in every nine barrels of oil in the world. "If prices stay low we will be able to withstand [it] for a long time," said Mr Falih. "Obviously we don't hope for it."
"Saudi Arabia has never advocated that it would take the role of balancing market against [the] structural imbalance that was emerging," said Mr Falih, adding he had always believed $100 oil was too high a price, incentivising rival oil producers and alternative energy sources.
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Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on -
All Saudi Aramco has accomplished is defending their market share. Considering their aggressive discounting they may have even increased their share modestly in northern Europe at the expense of Russia. There is no victory beyond that. Although over-leveraged U.S. energy companies will go out of business, their reserves will be acquired by better capitalized companies that will have more flexibility in long term development. Unconventional reservoirs are uniquely capable of scaling up or scaling down production over short periods of time in response to changes in commodity prices. This will reduce price volatility and stabilize world markets.
The only losers in this supply glut will be exporting countries that have subsidized their economies on petrodollars and have aging and outdated infrastructure that continues to fall apart due to lack of capital investment and national policies that prohibit outside investment. Venezuela is a good example.
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Permalink Reply by William C. Morrison on
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Saw a commentary today about Petrobras, saying it was in trouble. Too much debt, government intervention and union problems. Looks like they are casualties of the Saudi's, Russia still suffering and inflation out of control in Venezuela. Mexico is not so hot any more either. Of course not a lot of people care about Russia or Venezuela. Looks like the overall economy is skirting recession and the US dollar is getting stronger. Not looking good.
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Permalink Reply by Skip Peel - Mineral Consultant on
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There are implications for Russia which should be acknowledged. Saudi Arabian moves to undercut Russian crude prices in northern Europe preceded Russian intervention in Syria to prop up Assad working in concert with Iran. Since Iran (Shia) and Saudi Arabia (Sunni) are locked in a struggle for influence in the Middle East it could well be argued that Russia's actions are in part related to SA cutting into a crude market where there is declining competition from North Sea production providing an opportunity for Russia to increase its market share. Could Russia be sending SA a not so subtle message concerning its willingness to meddle in Middle Eastern affairs? Approximately 50% of Russia's hard currency from exports comes from crude.
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