Al-Naimi: Only Allah Knows Where Oil Prices Will Go

by Cameron Aubernon

Published: May 5th, 2015

al naimi only allah knows where oil prices will go

How long will Saudi Arabia allow oil prices to drop as the country’s production remains unchanged? Only Allah knows the answer.

Saudi Minister of Petroleum and Mineral Resources Ali Al-Naimi told CNBC as much when asked about where oil prices were heading amid speculation as to how long the country would maintain the status quo before cutting production. Al-Naimi added he wasn’t worried about the possibility of Iranian crude entering the mix as sanctions were lifted as part of Iran’s international nuclear deal, even though it would likely add to the growing glut and prompt lower prices still upon introduction.

The ongoing decline in oil prices began last year when OPEC kept production at 30 million barrels a day in order to maintain its share of the market against the likes of Canadian shale and U.S. crude from North Dakota.

Currently, Brent and West Texas Intermediate crude are trading for around $68/barrel and $60/barrel, respectively, helped by protests in Libya hampering exports, and possible disruptions linked to the ongoing conflict in Yemen.

[Photo credit: UNCTAD/ Flickr/ CC BY-SA 2.0]

#AliAl-Naimi #OilPrices #OilProduction #SaudiArabia #Speculation #SupplyAndDemand

Cameron Aubernon

Seattle-based writer, blogger, and photographer for many a publication. Born in Louisville. Raised in Kansas. Where I lay my head is home.

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8 of 17 comments

Jacob_coulter on May 05, 2015

This was always a dumb gamble on Saudi Arabia's part. Their nation's cash reserves are dwindling as a result of this price war. As soon as oil prices rise, US production will quickly go back online. It may be a different company pumping it (likely an oil major instead of a smaller firm) but it's still available to be pulled out of the ground. SA would have been better off simply buying up American companies that are part of the shale revolution than costing themselves billions and billions by attempting to crash the price of oil. They're cutting their nose off to spite their face. The genie is already out of the bottle.

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- Skor on May 05, 2015
  
  This was never about about messing with Murica's new petroleum extraction industry, it's about putting the squeeze on the economies of Iran and Russia, and it failed, like I said it would. The Russians responded to dwindling oil rev by cutting back on domestic spending and boosting arms sales. It hurt the average Russian, but the Russians are used to suffering. Russians can shrug off the kind of hardships that would make the average Westerner shriek in self pity. The Saudis, on the other hand, can not cut back on domestic spending. Keeping an army of do-nothing princes and princesses in new Bentleys is not cheap, and they ain't downgrading to BMW's either. The result is that the Saudis are burning through cash reserves much faster than the Russians. Told you so. Told you so. Told you so.
  
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- Pch101 on May 05, 2015
  
  @skor It's simpler than that: The Saudis need the money. Cutting production will only reduce their cash flow. They can't control pricing.
  
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- Ect on May 05, 2015
  
  Saudi Arabia hasn't been gambling, it's been behaving quite logically. When supply went up relative to demand and prices dropped, some people looked to Saudi Arabia to rectify this by cutting production. They did this once before, in the '80s. The result then was a loss of revenue to the Saudis, and a profit windfall to the Iraqis, Iranians, and other producers. Dumb move, if you're a Saudi. So this time, the Saudis aren't going to repeat that mistake. Smart move for them, too bad for Iran, Russia and Venezuela (among others). The only way to bolster prices by reducing production would be for OPEC+Russia to agree on a plan for everyone to scale back. Politically, I can't see this happening. We should also not forget that the Saudis are low-cost producers. They can make money at prices far below what most other producers need to get, and will still be in the market after others have had to shut down.
  
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RideHeight on May 05, 2015

That Al-Naimi guy definitely has his Molotov on.

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PrincipalDan on May 05, 2015

"Allah only knows." The most factual thing said out of petrol state in a long time.

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APaGttH on May 05, 2015

Cushing tickled tank top in mid-April and now has slightly declined. Oil broke $60 a barrel but maintains a narrow trading range - RBOB has gone well past $2.00. Fascinating market - production is easing, consumption is going up as we enter the summer driving season, and Americans are feeling a bit more optimistic, all of this drives petro use. Still fundamentally nothing has changed, OPEC is cranking out more and more, Russia is cranking out more. It appears in the standoff I wrote about we've had someone finally blink - it was the US producers. Which isn't a shock because as publicly traded companies who answer to shareholders, their appetite for price destruction is going to be less than state owned oil producers, who can "make it up in volume."

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- Ihatetrees on May 05, 2015
  
  +1. Also, the US export ban is actually hurting domestic producers - it partly explains the WTI / Brent difference. This adds to domestic volatility. I don't see the Saudi's blinking. The Russians (and Iranians) are getting hammered. For the former, if you look at the Ruble - it's horrific - but there's no way out for them. Well, maybe short of invading a Baltic nation and killing NATO...
  
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