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Page added on December 22, 2014
Saudi oil minister Ali al-Naimi: We’ll never cut production despite plunging prices
The Saudi Arabian Minister of Petroleum and Mineral Resources Ali al-Naimi has declared that the country will “never” cut oil production despite prices hitting five and a half year lows on over-supply and weak demand.
Al-Naimi added in a CNN interview that Saudi Arabia was also “not conspiring” to target US and Russian oil producers by not cutting supply and that it was too late for non-Organisation of the Petroleum Exporting Countries (Opec) members to offer any cuts.
Saudi Arabia will not cut prices, neither now nor ever in the future, he said.
“These rumours or whoever generated them, is completely mistaken. I was the first minister to welcome the production and addition of shale oil in 2008 and 2009, in Washington, why? Because it would give better stability and assurance to the world that peak oil, is a theory now that is there, but at that time, peak oil was a big deal,” said al-Naimi in the CNN TV interview.
“Saudi Arabia, you know, we are going to continue to produce what we are producing, we are going to continue to welcome additional production if customers come and ask for it.
“There is no effort against anyone in the International oil market, there are no conspiracies against other countries and that is what I said in my speech, I wish someone would take that translation and use it.”
Oil prices have plummeted over the last few months and hit a five-and-a-half-year low of under $60/bbl in December.
According to the International Air Transport Association, global airline profits next year will expand by 25% to $25bn as the oil price collapse has led to fuel prices plunging 51% from its triple digits peak.
In 2013 and 2012, oil prices averaged $100/bbl.
Opec has been blamed for not stepping in and reducing production amid high supply and low demand.
When CNN asked if non-Opec members offer cuts at this stage would Opec step up to the table or eave production where it is at, al-Naimi said that it was “too late.”
“If they want to cut production they are welcome, we are not going to cut, and certainly Saudi Arabia isn’t going to cut,” he said.
“The position we will hold forever, not [just in] 2015.”
23 Comments on "Saudi oil minister Ali al-Naimi: We’ll never cut production despite plunging prices"
Plantagenet on Mon, 22nd Dec 2014 10:57 am
The Saudi efforts to disprove peak oil will only bring on peak oil more quickly
Nony on Mon, 22nd Dec 2014 11:37 am
I think the Saudis realize that shale oil is the marginal barrel. If they reduce exports to keep price at 100, the US will keep adding 1-2 MM bpd (including NGLs) every year until the cows come home. THey will drill up the Eagle Ford, and the BAkken. Go back to the Austin Chalk. Figure out the rubble zone in the TMS. Etc. effing etc. At 60, that’s a whole nother kettle of fish and large amounts of shale are not economic.
It’s just that simple. Saudis are not doing anything sneaky but are letting the markets function. Heck and not out of goodness of their hearts but because they have no choice.
SugarSeam on Mon, 22nd Dec 2014 11:37 am
[i]I was the first minister to welcome the production and addition of shale oil in 2008 and 2009, in Washington, why? Because it would give better stability and assurance to the world that peak oil, is a theory now that is there, but at that time, peak oil was a big deal,” said al-Naimi in the CNN TV interview.[/i]
OK, what? … ” is a theory now that is there, but…”…????
Did he just concede peak, or dismiss it?
shortonoil on Mon, 22nd Dec 2014 11:44 am
Between 1980, and 1985 Saudi Arabia cut production by almost 50% to force prices higher. Between 1979 to 1985 oil prices rose from $12.64/b to $24.09/b. Saudi Arabia learned a very costly lesson; you can not increase revenue by cutting production to increase prices, and they lost market share that took them more than 10 years to recover.
As Naimi says: “If they want to cut production they are welcome, we are not going to cut, and certainly Saudi Arabia isn’t going to cut,”
This is not conspiracy, it is simply good business on Saudi Arabia’s and OPEC’s part.
We can show from the thermodynamic model that we use (the Etp model) that Saudi Arabia’s, and OPEC’s decision not to cut is the correct one for them them to make. It is more cost effective for them to wait for high production cost producers to be washed out of the market than to cut production to force the prices higher.
The fact the oil prices have fallen is no surpise to us:
http://www.thehillsgroup.org/depletion2_022.htm
What surprises us is the degree to which it has fallen. WTI was $55.50 this morning, which is getting very close to 3 standard deviation units (99.37%) from our projected 2015 price of $76/b. Since 2005 when conventional crude peaked, the market has been getting increasingly erratic. The variance in price has increase 412% between 2005 and 2013 as compared to 1960 to 2004. This behavior is offering an increasing dangerous, and difficult operational environment for the world’s petroleum industry.
http://www.thehillsgroup.org/
Kenz300 on Mon, 22nd Dec 2014 12:08 pm
Lower prices will increase global GDP and help consuming countries recover from the Great Recession. That will raise demand.
Russia, Iran and OPEC will slow any production investments and increases in production.
Shale, tar sands, deep water and other high cost production investments will all be reevaluated at these lower prices. New investments will slow or stop.
Supply and demand will come back into balance.
Depletion will continue……
rockman on Mon, 22nd Dec 2014 12:13 pm
“…from our projected 2015 price of $76/b.” I would never fault someone’s missed target as far as oil prices go…takes a good bit of courage to just try. And not that I would have predicted history repeating itself just a few years later.
But the average price of oil for the year 2008 was $98/bbl. And then the crash came and the average price for the year 2009 was $58/bbl. And the US economy responded to the 40% decrease in price by consuming LESS $58/bbl oil in 2009 than it consumed $98/bbl oil in 2008.
Not predicting a similar dynamic in 2015…and not saying it won’t be similar. I don’t know. But how different are the global dynamics today then just 5 years ago?
Speculawyer on Mon, 22nd Dec 2014 1:01 pm
I think the Saudis are just having fun causing pain to Iran and Russia. They really haven’t taken any action . . . they just talk but that talk can move markets I guess.
strummer on Mon, 22nd Dec 2014 1:23 pm
Shortonoil, you really should keep your domain functional if you link it in every single one of your posts. Just a friendly reminder.
bobinget on Mon, 22nd Dec 2014 1:52 pm
In 2008 the US lost 2.6 million jobs. I dare anyone,
making an invidious connection to today’s battle between Iran, Russia and Saudi Arabia.
http://www.businessinsider.com/saudi-oil-minister-hints-russia-doesnt-deserve-market-share-2014-12
I keep maintaining Russia wins this war despite
the Saudis battlefield victories.
It should be no news to anyone here. Days of ‘House of Saudi’ are numbered.
“There is no place in the 21st Century for Kings and their minions to dictate life and death decisions
for billions”. bobinget
All the kings men cannot, at this stage, put Humpty Dumpty together again.
Rulers of Venezuela, Russia, Iran, Iraq, Algeria, Libya— not democrats. Never will be. But, in spite of their best dinansty efforts they don’t rule by 19th century Royal mandate.
The Saudis are finished. Al-Nami doth protest too much.
Wikipedia:
Saudi Arabia is an absolute monarchy.[78] However, according to the Basic Law of Saudi Arabia adopted by royal decree in 1992, the king must comply with Sharia (Islamic law) and the Quran, while the Quran and the Sunnah (the traditions of Muhammad) are declared to be the country’s constitution.[79] No political parties or national elections are permitted.[78] The Economist rates the Saudi government as the fifth most authoritarian government out of 167 rated in its 2012 Democracy Index,[21] and Freedom House gives it its lowest “Not Free” rating, 7.0 (“1=best, 7=worst”) for 2013.[22]
If/when Venezuela gets taken over by China, the US
loses it’s fourth largest (crude) supplier.
Remember Orinoco, China covets that multi billion barrel oil sands conglomerate.
This will be a terrible loss for Americans. Venezuela
is a short, slow sail to GOM refineries.
WHEN we lose Venezuelan crude, the US becomes more dependent on KSA for supply. IOW’s KSA just got us by the nut sack
Canada’s in the process of cutting back on new
E&P. No help there for years.
bobinget on Mon, 22nd Dec 2014 2:26 pm
http://www.bbc.com/news/technology-30575104
Perk Earl on Mon, 22nd Dec 2014 3:14 pm
“It is more cost effective for them to wait for high production cost producers to be washed out of the market than to cut production to force the prices higher.”
Ya to that Short, particularly in light of Rockman’s comment regarding it taking 10 years for SA to get back market share after dropping production to raise price. It doesn’t make any sense to risk market share by cutting production in a field of suppliers in which many are higher cost operations. Might as well let the weak hands fall out – or like Buffett says, “You find out who’s naked when the tide goes out.”
I think it’s great Ali al-Naimi came right out and told it like it is – there’s no conspiracy here, just not cutting production, so please stop with all the rumors.
The only trouble with low prices is it risks long term global oil supply. While the marginal sources tap out more reliance shifts to existing conventional. We are effectively getting boxed in to an affordability ceiling in which any sources below it are open game, but above it will remain sub-surface. How unfortunate and tempting it is to know it’s there but be unable to economically extract it. “Yeah, but it’s right down there!”
bobinget on Mon, 22nd Dec 2014 3:17 pm
http://www.huffingtonpost.com/tech/
Perk Earl on Mon, 22nd Dec 2014 3:29 pm
From your linked article bobinget:
“The attacks come amid concerns that North Korea may mount cyberattacks against industrial and social targets after accusations by the United States that Pyongyang was responsible for a devastating hacking assault on Sony Pictures.”
So if there are accusations of a cyber attack by NK, they respond with a cyber attack? Hmm, but doesn’t the 2nd cyber attack against their long term foe indicate the ability and willingness to conduct cyber attacks?
I can see this situation with NK getting escalated very quickly unless NK ceases and desists.
Perk Earl on Mon, 22nd Dec 2014 3:57 pm
http://www.zerohedge.com/news/2014-12-22/belarus-full-blown-hyperinflation-panic-blocks-news-online-stores-bans-all-fx-tradin
Belarus In Full-Blown Hyperinflation Panic: Blocks News, Online Stores; Bans All FX Trading For 2 Years
“We have to do something with these Belarussian rubles,” exclaims one
Since I’m on a roll with off topic links and comments, here’s a dash of hyperinflation in Belarus.
Belarussian as she shops to turn worthless rubles (BYR) into physical assets. As AFP reports, The Belarussian currency was dragged down by the slide of the Russian ruble last week…”
This is something most people are unaware of, and that is hyperinflation when it does finally ensue takes place very quickly.
Perk Earl on Mon, 22nd Dec 2014 4:00 pm
Correction on last post of mine; “We have to do something with these Belarussian rubles,” exclaims one (then skip to) Belarussian…
JuanP on Mon, 22nd Dec 2014 4:28 pm
Nony, other than for your “till the cows come home” part, I completely agree with your comment.
shortonoil on Mon, 22nd Dec 2014 5:07 pm
Thanks strummer
Here is how the links are provided. If a quote is derived from our model, the Hill’s Group URL is posted. More than one of our members may put up a post as shortonoil. If it is other than me (B.W. Hill) it has to be a calculation that was arrived at, or at least in part from the Etp model. If you don’t see an URL it is my opinion, and there is not necessarily a calculation involved.
The reason we do that is obvious. A calculations that produces an output is likely to be much more accurate than an opinion. The Etp model is a theory, as in, a theory defined by Webster: “A formulation of apparent relationships which has been verified to some degree: distinguished from hypothesis”
The Etp model has been rigidly defined through its mathematical structure, and is based on generally accepted known physical laws; it is not a hypothesis. Its complete formulation can found in our 57 page report, “Depletion: A determination for the world’s petroleum reserve” available at the site.
The proof of the the Etp model, if comes, will probably not happen until long after we are all dead. Such is the workings of science. As a working, documented, and tested theory, however, it has significant social-economic value. That is my “opinion”.
BW Hill
ghung on Mon, 22nd Dec 2014 5:32 pm
Short, I think strummer’s comment was in reference to the http://www.thehillsgroup.org/ link taking us to GoDaddy who asks for a renewal of your URL (“Is this your domain? Renew Now!”).
shortonoil on Tue, 23rd Dec 2014 10:47 am
ghung said:
Short, I think strummer’s comment was in reference to the http://www.thehillsgroup.org/ link
WOW, talk about systemic risk!
The domain name “TheHillsGroup.org” is registered with GoDaddy (the web host is someone else) and is on automatic renewal. Yesterday, on the yearly renewal date, I rented a car using that credit card, and the rental company locked a $1000 on the account. The Bank’s computers saw the $1000, and locked the account for a few mili-seconds (thinking in its two bit mind that someone was trying to heist the account) and bounced GoDaddys invoice that arrived at the same instant. GoDaddy’s computers thought some one was pulling something, and refused to to accept that card. It took all day to straighten it up.
Now take this $73 transaction, divide it into $73 trillion (the World’s GDP) and that is the number of things that can go wrong in any one year. It is just a matter of time before this whole deal melts down into a mass of smoldering CMOS, and burned out vacuum tubes.
Happy Holidays – while it still sort of works.
http://www.thehillsgroup.org/
ghung on Tue, 23rd Dec 2014 11:45 am
Funny, that, Short. It’s sort of like when we paid off the mortgage a few years ago. A few weeks later we got two letters in the mail from Chase (on the same day): one confirming payment in full, and a notice of “Intent to Foreclose” if payment wasn’t made immediately. We called Chase who told us everything was fine; “Don’t worry about it”. Foreclosure notices, including by certified mail and FEDEX continued for weeks, sometimes two per week, and a red flag went up on our credit reports. Chase only amended our reports after we sent them a notice of intent to sue (…”these things take time”).
It took almost a year for ‘payment delinquency’ notices to come off of my Experian report. A couple of weeks after that, I got an offer from Chase to refinance at a lower rate. Jeez!
Meanwhile, my one credit card had its interest rate double and the credit limit cut in half. Cut that sucker in half over the phone.
Not sure if these banks are drowning in complexity (right hand not knowing what left hand is doing), or if they were spanking us for actually paying off the mortgage. I still have folks telling me I’m crazy for not having a mortgage; actually owning my home (…put that money to work!). My credit score has dropped almost 200 points because I don’t have any credit/debt now. Cry me a fucking river. Hope these banks burn in hell. I plan to throw a big party the day it all falls apart. All of you doomers have an open invitation.
Kenz300 on Sat, 27th Dec 2014 10:24 am
So why does the Keystone pipeline need to be built?
Nony on Sat, 27th Dec 2014 10:34 am
To cut $10+ off of tar-sands and Bakken oil transport cost.
Duh. It’s called infrastructure. You need it. Need pipes man.
Nony on Sat, 27th Dec 2014 10:34 am
Do you really think rumbling trains around with oil in them makes sense?