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Page added on February 24, 2016

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‘we can live with $20 a barrel,’ says Saudi Arabia

There will be no short-term resolution to the current oil glut in the form of coordinated production cuts, Saudi Arabia’s oil minister has warned.

In comments at an industry conference in Houston that sent the oil price spiralling lower, Ali al-Naimi stated categorically that a cut in supplies “is not going to happen”, reports the Financial Times. International benchmark Brent crude fell from above $34.50 yesterday afternoon to below $33 this morning on the news.

The market had hoped this month’s tentative deal to freeze output – struck between Saudi Arabia and Russia, among others – would eventually lead to a more definitive tightening of the spigot.

However, Naimi said “there is less trust” between the big oil powers and so cuts were not a realistic option, reports CNBC.

“Not many countries are going to deliver. Even if they say they will cut production, they will not deliver, so there is no sense in wasting our time seeking production cuts,” he added.

In an attempt to gradually rebalance the market, Saudi Arabia is still seeking to finalise the freeze, which was also agreed with Opec members Venezuela and Qatar. But seeking cooperation with the likes of Iran, which is ramping up production after emerging from international sanctions, promises to be difficult – reports earlier in the day said Iran’s oil minister called the proposal is “a joke”.

Sending a strong signal of its intention to hold firm in its turf war, Naimi said Saudi Arabia can live with oil as low as $20 a barrel even if it doesn’t want to. This is the level some brokers have predicted could be reached if entrenched oversupply continues.

There are, though, those who reckon that behind the steely rhetoric, producers have softened their stance considerably and that a recovery will come faster. Pavel Molchanov, the senior vice president and energy analyst at Raymond James, told CNBC oil could be as high as $60 by the end of the year.

“We are not talking about $100 – it’s not going back to $100 – but certainly something in the $50 to $60 range. Maybe north of $60 looks like a good bet over the next nine to 12 months,” he said.

the week



30 Comments on "‘we can live with $20 a barrel,’ says Saudi Arabia"

  1. ennui2 on Wed, 24th Feb 2016 10:11 am 

    “We are not talking about $100 – it’s not going back to $100 – but certainly something in the $50 to $60 range. Maybe north of $60 looks like a good bet over the next nine to 12 months,” he said.

    And…BAU can survive on that.

  2. shortonoil on Wed, 24th Feb 2016 10:55 am 

    “Sending a strong signal of its intention to hold firm in its turf war, Naimi said Saudi Arabia can live with oil as low as $20 a barrel even if it doesn’t want to.”

    For those who flunked 6th grade math; if Saudi Arabia can breakeven on $20 oil they were making at least a 500% profit on Gross Sales when oil was $100. Considering that EXXON was making a 15% profit on Gross Sales when oil was $100, that would have been a pretty amazing achievement. Of course, if anyone believes that they are automatically signed up for the “freshly painted, bargain basement, slightly used bridge deal of the year”.

    At $30 the industry is going broke – Saudi Arabia included. The BS coming out of the industry will most likely get deeper and deeper, until they shut their doors, and the power company shows up to throw the switch.

  3. twocats on Wed, 24th Feb 2016 11:12 am 

    “but certainly something in the $50 to $60 range. Maybe north of $60 looks like a good bet over the next nine to 12 months,” he said.” And…BAU can survive on that. [ennui]

    And… oil hasn’t been in that range for 18 months. So how long can a not-BAU situation run before it’s no longer BAU? Why is the default considered to be BAU as opposed to now being a non-BAU situation? Perhaps we’ve latched into a non-BAU and the question become, at what price point, how soon, and for how long, would we need to return to $50-60 range before we could relay back to BAU.

    I’m not saying either way is correct, but your statement brings with it underlying assumptions that forego your conclusions.

  4. marmico on Wed, 24th Feb 2016 11:48 am 

    It should be obvious by now that the quart shy of oil did flunk grade 6 math when it comes to gross profits.

    KSA built its asset reserves from next to nothing in 2002 to $750 billion at the 2014 peak.

    http://www.swfinstitute.org/swfs/sama-foreign-holdings/

  5. HARM on Wed, 24th Feb 2016 11:55 am 

    “if Saudi Arabia can breakeven on $20 oil they were making at least a 500% profit on Gross Sales when oil was $100. Considering that EXXON was making a 15% profit on Gross Sales when oil was $100, that would have been a pretty amazing achievement.”

    I could be wrong, but doesn’t KSA have some of the lowest production costs in the entire world. It’s not like they have to build and operate billion-dollar deep-sea rigs or use complicated and costly frack schemes to get at their oil. And Saudi oil is overwhelmingly light sweet, easy-to-refine crude. Not the viscous, sulfurous tar sands of Venezuela or Canada, right? Even with well water injections to keep their older fields going (Ghawar), production costs should only be a tiny fraction of most other countries’.

  6. HARM on Wed, 24th Feb 2016 12:10 pm 

    Sadly, it looks like the KSA will be producing and selling a good % of the world’s exportable oil for decades to come –and fully funding Al Qaeda, Taliban, ISIS, Boko Haram, Al Nusra, Madrassas all over the world, wars in Yemen and elsewhere. Unfortunately, I doubt I will live long enough to see the ruling family’s head on pikes.

  7. Darian S on Wed, 24th Feb 2016 12:55 pm 

    “Unfortunately, I doubt I will live long enough to see the ruling family’s head on pikes.”

    Hasn’t conventional peak arrived in most of the world, some say global conventional peak has passed, and some say unconventional peak has already happened in the U.S? IF that is so unless some other nations have vast unconventional resources and the finances or intent to exploit even at these low prices, then oil production in most of the world is going to drop.

    Demand has dropped but there is a limit to how low it can drop without significantly affecting the economies of nations, and vast chaos ensuing.

    Some say most if not all of those in OPEC are already producing as much as they can, so if global production drops and none ramps or can ramp production to compensate for global drops, it should be only a matter of time before supply matches demand and soon after falls below demand.

    If demand increases over time, that moment comes sooner. Given low prices it is unlikely global unconventional production is going to be ramped up to compensate for falling conventional, unless some low cost method of unconventional production is available or prices rise substantially.

  8. rockman on Wed, 24th Feb 2016 1:27 pm 

    ExxonMobil can also “get by” on $20 per bbl: they have just as good (and maybe even slightly better) net revenue from its existing production. And while they may never recover 100% of their investment on more recent wells many of their fields turned profitable many years ago and are producing profitably at current low prices. Of course many projects they had planned don’t meet the required threshold today.

    And the same is true for the KSA: their production (lifting) cost may be the same or even a tad higher then XOM’s. So the fair question is what oil price does the KSA need to justify drillng for NEW RESERVES? An answer only the KSA can provide. But we do know one thing: the KSA reported little or no NEW reserves discovered when oil was $90+/bbl so I’ll venture to say it has very if any to develop at the current price level.

    Some folks are constantly misrepresenting the current dynamics within the KSA: for the most part they are generating most of their revenue by selling its EXISTING INVENTORY while at the same time providing little or no evidence they are generating replacements. Even the BIG OIL’s (and even a few LITTLE OIL Shale players) are still drilling and developing new reserve replacements. Perhaps not a lot but how much NEW RESERVE ADDITIONS has the KSA bragged about in the last 24 months.

    Essentially the KSA is doing something similar to a guy that won the $1 million lottery: he’s doing better then the guy making $80k/year: he doesn’t work (just like the KSA doesn’t have to develop NEW RESERVES) and draw any salary. Any not only that he’s spending money faster the he ever has before (just like the KSA producing so much). Neither he nor the KSA need to develop new income sources…they are flush. Until they aren’t. The lottery winner could be investing some of that big gain into future income grnerating investments…but he isn’t. Just as there are no significant signs of the KSA developing NEW oil revenue sources.

    Selling inventory (selling developed reserves) to generate a nice revenue stream is not the same as making a profit. Especially if one isn’t investing in building (or drilling NEW RESERVES) replacements for that inventory. The immediate cash flow looks great…until you realize it isn’t sustainable.

    If folks stop and think about what’s really happening they should realize that the KSA is not hurting just other oil sellers but themselves also. XOM et al are going to have a difficult time replacing reserves…and it may be even more difficult for the KSA to do so. And they can report all the reserve gains they like. But the question remains: name all the big and NEW oil discoveries they’ve announced in the last 10 years. And you can’t count discoveries made decades ago but we not economical to develop at a lower oil price: those are not NEW reseves.

    I don’t really care if the redundancy pisses anyone off: every time someone confuses the cost to develop NEW reserves and the cost to produce EXISTING reserves I’m going to call them out on it. For years I’ve seem this confuse many folks here and it’s time to put an end to it. LOL.

  9. HARM on Wed, 24th Feb 2016 2:28 pm 

    @rockman,

    I hear you, but… if your existing reserves are more than enough to keep your oppressive regime in power for another 40-50 years before ELM really kicks in, then existing vs. new reserves doesn’t really matter much –at least not to people alive today.

  10. Truth Has A Liberal Bias on Wed, 24th Feb 2016 3:25 pm 

    I believe it was $106 a barrel that an IMF report claimed KSA needs to balance its budget. I guess the other side of the equation is how many barrels at $106 per barrel they need to produce to balance the budget. KSA will be flat broke by 2020 at the rate they are spending from their savings. KSA as a nation state is soon going to be facing an existential crisis. They need to undergo a lot of transitions in the near future and I don’t think they’ll succeed at it. Friction will develop, there will be strife and they will fragment as a nation.

  11. geopressure on Wed, 24th Feb 2016 3:26 pm 

    Saudi Arabia is really not that bad… The Powers-That-be want you to think that they are oppressive so that they can easily justify overthrowing them if it suits their needs…

    KSA is forced to take all those heads, they tried to build prisons, but the West stopped that plan… So it’s either take their heads or let them take your head… they don’t have a choice…

  12. Apneaman on Wed, 24th Feb 2016 3:29 pm 

    British oil industry warns it may collapse

    http://money.cnn.com/2016/02/23/news/economy/uk-oil-industry-losing-money/

  13. shortonoil on Wed, 24th Feb 2016 3:41 pm 

    if your existing reserves are more than enough to keep your oppressive regime in power for another 40-50 years before ELM really kicks in,

    Actually, Saudi’s reserves are very much in question. Reports from Aramco reserve engineers tell us that the water cut is now better than 50% at Ghawar. Some simple calculations inform us that its original 350 foot oil seam has now been reduced by over 90%. Ghawar is now better than 90% depleted. Manifa is a huge, heavy oil, vanadium laced mud hole that sat for sixty years because no one would buy the oil. Saudi finally put it into production by investing $38 billion in a specially designed refinery to process its oil. Those two fields account for more than 80% of Saudi’s reserves. Manifa’s oil can not be sold on the market, and Ghawar is in its last days, for sure!

    It is much more likely that the Saudi fields have 5 more years, than 40 or 50.

  14. meld on Wed, 24th Feb 2016 4:02 pm 

    This is just a massive poker game. And nobody is holding any decent cards.

  15. makati1 on Wed, 24th Feb 2016 4:10 pm 

    Why do we waste so much time worrying about the price of a disappearing, unnecessary resource when the real worry is how long humans can continue to survive climate change, accelerated by the use of that same resource?

    Or the probability of a nuclear world war, also increased by that same resource?

    Or even the collapsing global economy that will also radically change everything in the next few years?

    It is only a matter of time before “oil” will be a swear word as it has destroyed our opportunity for a ‘good life’ for our kids and theirs. The sooner the Hydrocarbon Age ends, the better for the inhabitants of this planet. All the oily users, investors and careers will reset to the new world without capitalism, hydrocarbons and, maybe, if we are really lucky, peace.

  16. rockman on Wed, 24th Feb 2016 6:48 pm 

    HARM – Forget 40 or 50 years. Even ELM will be overridden by depletion and the ever decreasing ability to replace reserves. For instance the debate over how much reserves the KSA really has is completely irrelevant. 50 billion…500 billion…1 trillion bbls doesn’t matter. They can only produce oil at a specific rate. And what’s that max rate? Who knows exactly but I suspect they are close to it. The simple fact: the early oil discoveries are not only the largest but also produce at the highest rate. That doesn’t seem true given the high current production rate compared to 30 years ago. But I’m talking about the rate per well or even per field. We are producing more oil but from an ever increasing number of wells. Remember that despite the surge in US production the average well produces less then 20 bopd. But remember the high decline rates of those shale wells. Remember it took about 40 years to decline from our PO. Does anyone think that the US won’t return to the pre-shale rate until 2050?

    Now consider how the years of high oil prices that led to the US production increase we saw no comparable increase in the number of global WELLS. Yes, wells and not production. Difficult to document exact numbers but increasing the production from EXISTING WELLS is a very different dynamic then increasing the number of NEW WELLS.

    I realize this was a tad rambling but hopefully some points were clear enough.

  17. Rick Bronson on Wed, 24th Feb 2016 6:51 pm 

    US weekly oil production touched a new low last week. So Saudi plans are working.

    Here are the targets that Saudi’s want to take on.
    Conventional crude from Iran, Iraq.
    Polar oil from Russia.
    Shale oil from USA.
    Sands Oil from Canada, Venezuela.
    Natgas & Biofuels used for Transport.
    Electric, Plugins & Hybrids that reduce the oil consumption.

    The list goes on and on and on.
    Goodluck Saudis.

  18. Nony on Wed, 24th Feb 2016 8:07 pm 

    Yawn. Heard all this difficulty replacing the reserves back in the 1970s. And we have more reserves now than then. Plus 40 years of growing production.

  19. HARM on Wed, 24th Feb 2016 11:13 pm 

    @Nony,

    We can agree on that point. I’ve read so many premature “the peak is nigh” predictions that I’ve become inured to them. I can’t buy any bold claim at face value unless its supported with a ton of relevant and solid data.

    I don’t recall anyone here or at TheOilDrum 8 years ago predicting that the U.S. would frack our way to a double peak in oil production (nearly matching 1971), that global production would exceed 90 MBPD, or that oil was going to drop below $30/bl without a massive recession.

    That’s the problem with the future. It’s so darned hard to predict. And me wishing things to be other than they truly are does not change reality.

  20. GregT on Thu, 25th Feb 2016 1:04 am 

    “And me wishing things to be other than they truly are does not change reality.”

    No it does not. That doesn’t appear to stop you from trying, however.

  21. makati1 on Thu, 25th Feb 2016 3:13 am 

    Harm, “reserves” in the ground are NOT necessarily gasoline at the pump, and may never be. How many petro corps have been writing off their equity/reserves this last year because it may never be recoverable? Answer: many and more to come. When the last well shuts down, there will still be billions of barrels of petroleum in the ground, and there is will stay.

  22. HARM on Thu, 25th Feb 2016 3:48 am 

    @GregT,

    As a friend who did a tour in the Navy once said, “Wish in one hand, $hit in the other and see which fills up first”.

  23. shortonoil on Thu, 25th Feb 2016 7:00 am 

    “I don’t recall anyone here or at TheOilDrum 8 years ago predicting that the U.S. would frack our way to a double peak in oil production (nearly matching 1971), that global production would exceed 90 MBPD, or that oil was going to drop below $30/bl without a massive recession.”

    I don’t recall that anyone predicted that in 2013 the world would discover 4 Gb of new oil and consumer 32 Gb. But we did project that a fall in prices was coming six months before it arrived:

    http://www.thehillsgroup.org/depletion2_022.htm

    I also don’t recall anyone predicting that the world debt load would increase more in one year than it had in the previous 25. Seems to be a whole lot of stuff that no one predicted; such as Whiting Petroleum, the largest operator in the Baken, announcing that it would shut down all of its fracking operations. Well, we did predict that Shale would eventually go broke – but anyone with two brain cells still working could have done that!

    http://www.thehillsgroup.org/

  24. rockman on Thu, 25th Feb 2016 9:04 am 

    Yada yada yada: did everyone notice that no one answered the basic question: US production took about 40 years to decline from our 1971 peak until high prices kicked the shales off. So once more a very simple question: who believes US oil production won’t return to the pre-shale low until 2050…or later? Come on now all you cornies: you’ve been high on the new near US peak so do you think the shales reset our production decline curve to 1971?

  25. PracticalMaina on Thu, 25th Feb 2016 9:14 am 

    Rockman for the sake of the future I hope the decline is relatively steep and steady. It should be, correct? High decline rates and lenders seeing them as risky. With prices these cheap we will cook ourselves in no time.

  26. GregT on Thu, 25th Feb 2016 9:19 am 

    “As a friend who did a tour in the Navy once said, “Wish in one hand, $hit in the other and see which fills up first”.”

    Strange friend. Even more so if he was in the navy. Wishing for uncomfortable situations to simply not exist is never a good strategy, especially when one is expected to be put into harms way. Better to assess the situation realistically and respond accordingly, than to simply wish it wasn’t so. Which would be much the same as shitting in one’s own hands.

  27. Nony on Thu, 25th Feb 2016 10:17 am 

    I think the US base decline rate (the “if you stopped all drilling” decline rate)is higher than in 1971. This is for two reasons: (1) more of the production is recent (and more recent production has faster declines) and (2) because more of the production is from tight rocks (that have faster decline than more permeable rocks).

    It’s actually curious to me that US production has not fallen faster. Is the per rig productivity really improving that much?

  28. joe on Thu, 25th Feb 2016 11:58 am 

    Bumpy plateau. Que the rise of tight oil supply to cap any gains in price. The only answer now is the US join opec.

  29. HARM on Thu, 25th Feb 2016 8:20 pm 

    I’m not “wishing” for another 40-50 years of BAU. Nonetheless, that is what appears to be happening. Peak Oil has already been delayed by a decade, thanks to fracking/tight oil and other unconventional sources. It could be delayed for several decades more at the rate things are going.

    Turns out, we were partially wrong –the technology genie actually put out for once and oil & gas producers are more resourceful than expected. They actually pushed out Hubbert’s peak a fair bit. Is there any harm in admitting that?

  30. Dooma on Fri, 26th Feb 2016 3:12 am 

    Do you think that is why Matt Savinar is now a star-gazer?

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