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As oil prices tumbled on the world markets for most of 2014 producers turned to Saudi Arabia as the key to global energy supply. In November Saudi “oil minister” Al-Naimi and his OPEC colleagues met in Vienna as many oil producers scrambled for solutions to the price fall off. SUSRIS provided context for our report on the OPEC session:
“Market over supply and slipping global demand have knocked prices to five year lows. In the lead up to the OPEC session reports focused on damage being done to oil producers who relied on prices in the $100/barrel range to sustain government budgets — especially troubled economies like those in Iran and Russia — and attempts to protect OPEC, especially Saudi, market share from expanding American oil production. Vulnerable producers went into the meeting calling for production cuts to boost global prices but the meeting concluded with no change to the OPEC output level of 30 mbpd.”
A press release from the Conference said, “The increase in oil and product stock levels in OECD countries, where days of forward cover are comfortably above the five-year average, coupled with the on-going rise in non-OECD inventories, are indications of an extremely well-supplied market.” Despite the anguish of some members over declining prices the November meeting ended with OPEC officials dryly noting, “Recording its concern over the rapid decline in oil prices in recent months, the Conference concurred that stable oil prices – at a level which did not affect global economic growth but which, at the same time, allowed producers to receive a decent income and to invest to meet future demand – were vital for world economic wellbeing. Accordingly, in the interest of restoring market equilibrium, the Conference decided to maintain the production level of 30.0 mb/d, as was agreed in December 2011.”
A month later, as speculation on Saudi Arabia’s motives for holding fast on oil production — as many thought only Saudi cuts could salvage high market pricing — Fahad Nazer, writing for CNN Money, put the Kingdom’s production policy in perspective:
“As the world’s biggest producer of crude oil, Saudi Arabia has a lot of influence on prices. One theory is that the Saudis are intentionally crashing oil markets to undermine Iran. The implication is clear: Saudi Arabia is once again using oil as a weapon to weaken its political rivals. But here’s the catch: The health of the Saudi economy — and some would argue, the viability of the Saudi state itself — remains extremely dependent on oil. Despite numerous initiatives and billions of dollars spent on efforts to diversify the Saudi economy, oil proceeds continue to account for 90% of export earnings, approximately 80% percent of government revenues and about 40% of GDP.”
Minister Ali Al-Naimi at 166th OPEC Conference in Vienna, Nov. 27, 2014. (OPEC Photo)
Today Saudi Minister of Petroleum and Mineral Resources, the “oil minister,” Ali Al-Naimi addressed the policy behind the Kingdom’s energy production rates and its role in maintaining the stability of the global energy market at a Berlin conference. Here for your consideration is a report, provided by the official Saudi Press Agency, on this critical topic. Additional articles, interviews and reports are provided at the links that follow the SPA report and more can be accessed in the SURIS Special Section, “Economics and Politics of Oil – 2014.”
Al-Naimi confirms that the stability of oil markets remains the Kingdom’s main pillar of its oil policy
Riyadh, 13 Jumada I 1436 H, March 4, 2015, SPA — Eng. Ali bin Ibrahim Al-Naimi, Minister of Petroleum and Mineral Resources, confirmed that the stability of oil markets remains the Kingdom’s main pillar of its oil policy.
In a paper titled ‘Role of the Kingdom of Saudi Arabia as an energy exporter in the 21st century’ before the German Arab Friendship Association held in Berlin today, Al-Naimi said despite that supply and demand are the main aspects determining the oil price, other factors include speculations, understanding of future developments related to oil, and the use of oil as an asset.
He said when oil prices soar to high skies as was the case in the recent years, the international oil sector tend to increase investments, noting that this led to huge oil production costive levels, citing deep water fields, north pole fields, heavy raw fields in Canada and Venezuela and shale oil fields in the U.S.
This led to an increase in supplies and if the speculation factor is taken into consideration, you will face decreasing prices, he said stating that this the mechanism controlling the oil prices.
During the current oil price falls, OPEC and the Kingdom of Saudi Arabia, in particular, were subject to detrimental and unfair criticism due to what we can say a natural response in the market, Al-Naimi said.
He recalled that OPEC has last November taken a historic decision not to interfere in the market, leading some to make wrong speculation as why the cartel has opted to this decision which will, for sure, prove correct in the future.
OPEC’s 166th Conference, November 2014 (OPEC Photo)
As regards Saudi Arabia’s oil policy, he confirmed that nothing new has taken place. Our endeavor to bring about a stable market was, is and will remain the same, Saudi Arabia’s minister of petroleum and mineral resources stated. To this extent, he recalled Saudi Arabia’s relinquishing policy when the market witnessed severe shortages in the past. He also recalled that when the market witnessed huge surplus of production, some circuits demanded that Saudi Arabia shrink its production to make a balance in the market, a wrong measure Saudi Arabia took in the past and will not repeat as it is not its business to support high-costive producers at the expense of its share in the market, he added.
However, facts on the ground are different, he said, explaining that non-OPEC producers are now pumping more than they were doing in the 1980s of last century. He said those players were not showing any cooperation to stabilize the market in the current period due to their own reasons, but the Kingdom of Saudi Arabia would keep determined to show cooperation at any time to reach consensus in these matters.
He said the new increase of supply, mostly coming from the United States of America, was widely welcomed in the international oil market and the world economy as well. This increase, in addition to Saudi Arabia’s efforts to compensate the shortage originating from other oil exporting countries suppliers, have helped to level the market, a measure without which you would have seen great damage to the world economy which have not yet fully recovered from its long-sustained financial crisis, he said. At that time, Saudi Arabia has welcomed new supplies of non-traditional oil, including shale oil, he added.
Shaybah oil field area, northern Empty Quarter of Saudi Arabia.
He reassured that the long-run demand on oil, will necessitate its supply from all sources of possible energy, including fossil or renewable energies.
He confirmed that demand on fossil energy will increase, citing the increase of world population, expansion of the central class all over the world and others.
He stated that the oil market is an international and developing one. However, it is developing with a slow pace in the current time, he said, adding that he believes that there is room for all producing countries to come up with their plans. But during imbalance of supply and demand, countries with low-cost production will definitely have a privilege than those with high-costive machine. In this regard, Saudi Arabia will become the most benefiter.
He noted that recess period has, of course, its difficulties. But also it has its benefits, he said, citing the oil companies going to take more firm approach and focus on enhancing of its productivity skills. This is applicable to Saudi Arabia government-run oil company of Aramco, he added.
He concluded that the stability of oil market will remain our goal but, despite that we could never stop the fluctuating investment ups and downs of oil market which will show-up from time to time, we could work to alleviate and control them.
It is important that all oil producing countries – OPEC and non-OPEC – continue to focus on common long-run objectives of guaranteeing the stability of the market, achieving sustainable future development for all producing and consuming countries alike, he said, adding that he wishes and expects that supply and demand balance will come to surface a stable situation again as well as prices.
He, then, tackled the commercial and investment bilateral relations between the Kingdom of Saudi Arabia and the Federal Republic of Germany. He said the trade exchange size today hit an eleven billion Euro with German conglomerates now operating in the Kingdom on a number of joint ventures, particularly in the field of tunnel digging, renewable energy, energy capacity, rubber industry, refining and processing, petrochemicals, health care, training, support services and transportation.
Read more about this topic:
- Economics and Politics of Oil – 2014 – SUSRIS Special Section
- Oil Market Turmoil a “Temporary and Transient” State – Naimi – SUSRIS – Dec 18, 2014
- Economics and Politics of Oil – 2014 – SUSRIS – Dec 1, 2014
- 166th OPEC Meeting in Vienna Concludes With No Cuts – SUSRIS – Dec 1, 2014
- World Energy Outlook Released – EIA/CSIS – SUSRIS – Dec 1, 2014
- Saudi Oil Production “Crucial” to EIA 2015 Forecast – U.S. Energy Information Administration/TWIP – November 14 . 2014
- Arab-US Energy Cooperation – AUSPC2014 – SUSRIS – Nov 13, 2014
- Saudi Economy/Quarterly Oil Market Update 2014 – Jadwa Investment – Oct 31, 2014
- New Patterns of Economic Relations and the Energy Order – Prince Abdulaziz – SUSRIS – Sep 17, 2014
- Saudi Economy/Quarterly Oil Market Update 2014 – Jadwa Investment – July 21, 2014