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More shale, who cares? Saudi Arabia pushes for at least $70 oil

More shale, who cares? Saudi Arabia pushes for at least $70 oil thumbnail

Budget needs are forcing Saudi Arabia to push for oil prices of at least $70 per barrel this year, industry sources say, even though U.S. shale oil producers could benefit and Riyadh’s share of global crude markets might be further eroded.

FILE PHOTO: U.S. President Donald Trump welcomes Saudi Arabia’s Crown Prince Mohammed bin Salman in the Oval Office at the White House in Washington, U.S. March 20, 2018. REUTERS/Jonathan Ernst

Riyadh, OPEC’s de facto leader, said it was steeply cutting exports to its main customers in March and April despite refiners asking for more of its oil. The move defies U.S. President Donald Trump’s demands for OPEC to help reduce prices while he toughens sanctions on oil producers Iran and Venezuela.

The export cuts are designed to prop up prices, sources close to Saudi oil policy say. Saudi officials say the kingdom’s output policies are merely intended to balance the world market and reduce high inventories.

“The Saudis want oil at $70 at least and are not worried about too much shale oil,” said one industry source familiar with Saudi oil policy.

Another source said Saudi Arabia wanted to “put a floor under oil prices” at $70 or slightly lower, and added: “No one at OPEC can talk about output increases now.”

Officially, Saudi Arabia, which plans to raise government spending to boost economic growth, does not have a price target. It says price levels are determined by the market and that it is merely targeting a balance of global supply and demand.

Even a price of around $70 a barrel would not balance Saudi Arabia’s books this year, according to figures cited by Jihad Azour, director of the International Monetary Fund’s Middle East and Central Asia department in February. For that, he said, Riyadh needs oil prices at $80-$85 a barrel.

Saudi Arabia, the world’s largest oil exporter, also wants to make sure it avoids a repeat of the 2014-2016 oil price crash below $30 per barrel, sources familiar with Saudi policy said.


Saudi Arabia plans to reduce March and April oil production to under 10 million barrels per day — below its official OPEC output target of 10.3 million bpd.

A Saudi official told Reuters this month that despite strong demand from customers, state oil giant Saudi Aramco had cut its allocations for April by 635,000 bpd below nominations — requests made by refiners and clients for crude.

Saudi Energy Minister Khalid al-Falih said such swings were not unusual because last year the kingdom had raised output and exports above targets to avoid imminent shortages.

Saudi Arabia has also been advocating an extension of OPEC-led supply cuts beyond June until the end of 2019.

Russia, which is not an OPEC member but is cutting output in tandem with OPEC, can balance its budget at oil prices of $55 per barrel and has not made clear yet whether it is prepared to extend them when OPEC next meets in June.

“With budget needs at above $85 per barrel, the Saudis desperately need prices at above $70 per barrel,” said Gary Ross, CEO of Black Gold Investors and a veteran OPEC watcher.

“They also need to convince Russia that the strategy of output cuts makes sense despite the loss of market share to the United States,” he said.

FILE PHOTO: Saudi Energy Minister Khalid al-Falih speaks during a news conference in Riyadh, Saudi Arabia January 9, 2019. REUTERS/Faisal Al Nasser

The United States and Russia produce 12 million and 11 million bpd respectively. Unlike Russia, the United States pumps at will via its commercial energy sector, led by shale. The International Energy Agency forecasts its output will soar by another 4 million bpd in the next five years.

Those increases would be likely to outpace the growth of global demand and give Washington an even bigger share of the global market, making it a bigger exporter than Saudi Arabia.


Riyadh has long been a close ally of the United States and the two countries have coordinated oil policy more closely since Trump became president than under his predecessor, Barack Obama.

Trump has supported Saudi Crown Prince Mohammed bin Salman despite a global outcry over the killing of journalist Jamal Khashoggi, a critic of the Saudi government, and has made clear he expects OPEC to help lower global oil prices.

Last year, Saudi Arabia raised output steeply under pressure from Washington. But it later heard that the United States had granted Iranian oil customers unexpectedly generous waivers and the price of oil subsequently fell to $50 per barrel.

On Monday, OPEC and its allies, led by Russia, scrapped a planned meeting in April and will decide instead whether to extend output cuts in June, once the market has assessed the impact of new U.S. sanctions on Iran due in May over its non-compliance with a deal to curb its nuclear program.

“We have to wait and see what the Americans will do first,” a second OPEC source said.

There is, however, no guarantee Saudi policy will remain unchanged if Washington puts pressure on Riyadh to raise supply.

“They (the Saudis) do care about Trump, but they can’t do whatever he says every time,” an OPEC source said.


23 Comments on "More shale, who cares? Saudi Arabia pushes for at least $70 oil"

  1. Anonymous on Sat, 23rd Mar 2019 4:56 pm 

    I’m assuming the article is referring to Brent, not WTI price. Brent is a world price and probably more what the Saudis think about. WTI is what is usually referred to by US media. Reuters is English (mostly) so that is another reason for me guessing Brent.

    Brent is currently at $67 and WTI is currently at $59. So we are probably talking about a $3 increase, not an $11 one. But since the article doesn’t specify, we don’t know 100%.

    In any case, I think it will be hard for the Saudis to move prices up $3. I think if WTI goes over $60, the shale companies are going to go crazy again. All that talk of discipline? Pshaw! We’ve seen in mid 2015 and in all of 2018, that shale activity rebounds very significantly with WTI above $60. Expect the rig count to start rising, not falling if WTI goes over $60.

  2. makati1 on Sat, 23rd Mar 2019 5:21 pm 

    Anon, but what happens to the US economy if oily prices rise? I don’t think it can take higher prices for very long. Eventually something is going to trigger the collapse. Too many shaky cards. I would like to see $100+ oil so use would be cut.

    Filipinos are already paying $4+/gal for gasoline. $6 would slow down the sale of unnecessary cars here. You can almost walk thru the city faster than you can drive.

  3. Anonymous on Sat, 23rd Mar 2019 5:36 pm 

    “Anon, but what happens to the US economy if oily prices rise?”

    The economy will be hurt by higher oil prices. I don’t think an extra $3 makes much difference. But $100/bbl is bad news. And of course, $40 instead of $60 would help.

    Of course the US oil industry benefits by high oil prices but most of the country does not. In this sense, what helps US E&P is the opposite of what helps the country. However the consumers benefit from US E&Ps producing all out and lowering price. But not if US production growth is predicated on high price.

    “I don’t think it can take higher prices for very long. Eventually something is going to trigger the collapse. Too many shaky cards. I would like to see $100+ oil so use would be cut.”

    I agree that there is a lot of debt but this is really a separate issue from oil.

  4. makati1 on Sat, 23rd Mar 2019 6:05 pm 

    Anon, debt a different issue? I think it is very much connected to the price of oil. If there was no debt, a higher oil price would be tolerable. But, with everyone (country, states, corporations and citizens) drowning in debt, every price change sways the economy plus or minus. The knife edge is getting sharper. Sooner or later shit has to happen and …?

    It can go to $20 and kill the fraking industry, requiring more oil imports (much bigger trade deficit), or $100+ and kill the economy. Sooner or later something will happen to push the US off the $40-$60 fence. I hope you are prepared for that day.

  5. Peter on Sat, 23rd Mar 2019 7:26 pm 

    The global economy is going to crash if the price of oil keeps skyrocketing.

  6. Outcast_Searcher on Sat, 23rd Mar 2019 8:52 pm 

    $100 oil won’t kill the economy at all, which nearly $100 oil for four years from mid 2010 to mid 2014 amply demonstrated. Not that doomtards notice any data contrary to their irrational belief system.

  7. makati1 on Sat, 23rd Mar 2019 11:49 pm 

    Onlooker, and in February 2015 you saw what happened. But those few years were in a bubble blowing, zero interest time and consumers still had the ability to borrow. Now massive personal debt will prevent the same thing from happening again. Wait and see. Only suckers bet on economic history.

    But, bring it on! Why stop at $100? Why not $200 if it will not affect the economy? Go for it! I am prepared for the next crash, are you? LMAO

  8. print baby print on Sun, 24th Mar 2019 1:37 am 

    Outcast you probably belong to 1%. Could you please print me one mil .

  9. makati1 on Sun, 24th Mar 2019 2:54 am 

    Oops! Sorry onlooker, I meant Outcast. ^_^

  10. Davy on Sun, 24th Mar 2019 4:48 am 

    “$100 oil won’t kill the economy at all, which nearly $100 oil for four years from mid 2010 to mid 2014 amply demonstrated. Not that doomtards notice any data contrary to their irrational belief system.”

    Not a very good example considering QE and ZIRP were firing up on all cylinders during 2010-2014. If we had $100 oil now I don’t think it would be a good thing considering all the weaknesses. Would it destroy the economy, I doubt it. I see $60 -$70 range as agreeable to consumers and producers alike. We need more renewables coming on so it is very important that this range is maintained. Renewable market penetration is a product of a healthy economy. I say healthy in a relative way. Big money needs it and they have prospered. I think a lot of sectors and lots of lower class people are in hard times and have been for a decade. It appears producers agree with this because they like this range. I don’t see low oil prices as very beneficial anymore to the world economy. Oil is too important at a stable range. Low prices don’t benefit much. Low prices have marginal impact these days. What juices things are easing and maintaining low rates as we witness from the FED’s mini tightening fiasco.

  11. Davy on Sun, 24th Mar 2019 4:52 am 

    “Now massive personal debt will prevent the same thing from happening again. Wait and see”

    makato, personal debt is not the issue today it is sovereign debt and corporate debt in the EU, US, and China and to a to a lesser extent in the EM countries.

  12. Robert Inget on Sun, 24th Mar 2019 9:00 am 

    The Saudi oil-war on US shale oil companies was a disaster for all but US large auto makers.
    SUVs, pick-up trucks, to this day dominate sales.
    Because American oil companies are publicly owned it was mainly sucker share holders taking the hit.

    Trump is not entirely to blame for the Yemen series of War Crimes.
    FOUR YEARS ago we encouraged Saudi Arabia to
    begin bombing Yemen to rubble. The US provided
    target intel, air to air refueling for EVERY sortie.
    Efforts in Congress to stop American involvement, voted down just a few weeks ago.

    Then there’s Syria. KSA involvement in that civil war went on for almost ten years.

    Last year the Kingdom ‘attacked’ Qatar politically
    embargoing ports. US bases in Qatar prevented
    an all out invasion.

    Then of course there’s Iran.

    My point? All of these wars nearly drained
    Saudi foreign reserves, placed wasteful pressure
    on Saudi oil production.

    Of course KSA needs $80 crude to survive.
    If they need to cut US exports to under a MB p/d
    on fewer they will.

    Here’s the genuine danger to the US economy:

    If/when gasoline/diesel prices go nuts, “Katy bar the door” folks will default on those sub prime auto-loans a la 2008.

    Millions will find themselves unemployed.

  13. Cloggie on Sun, 24th Mar 2019 3:03 pm 

    Predicted it a few weeks ago, it now seems to be happening:

    “New Turkey-Iran-Qatar axis is rising in Middle East, and it has Saudi Arabia furious”

    And SCO could back it.

    KSA, Israel and US influence in the ME are toast.

  14. Truth Buster on Sun, 24th Mar 2019 3:12 pm 

    “New Turkey-Iran-Qatar axis is rising in Middle East, and it has Saudi Arabia furious”

    What a joke. Two of the worst performing economies in the ME and a small sliver of land in the Persian Gulf a few miles wide and long. WTF and cloggo is jumping up and down.

  15. makati1 on Sun, 24th Mar 2019 5:52 pm 

    Truth, maybe you should look at their location and resources before you act like an idiot? I’m not going to bother to educate you. It seems impossible from your narrow minded comment. America is a joke. Talk about worse performing economies. LMAO

  16. twocats on Sun, 24th Mar 2019 8:27 pm 

    I would be surprised if oil prices are moving with supply/demand (unless there is a serious withdrawal of inventories). they are responding to the economy – $100 for 4 years or whatever was at the height of the recovery.

    the fed has been normalizing rates for years now. and now they’ve come to a decisive moment. keep raising rates and risk imploding the economy. keep rates the same or lower and risk sending the perception that the economy is in recession, thus imploding the economy.

    it’s been 10 years of ZIRP/NIRP globally to get to this point and you’d have to be delusional to think ANYONE knows what’s going to happen with much certainty. We are completely off map here.

  17. makati1 on Sun, 24th Mar 2019 9:10 pm 

    twocats, on this one, we agree. No one knows what is going to happen or when. We live in a time unlike any before. There is no comparison, no matter what the talking heads claim or the “financial advisors” post. We are sitting on a very shaky fence and the debt termites are eating away at it. All we can do is prep for the worse and hope for the best.

  18. Moderate & Neuter DavySkum on Mon, 25th Mar 2019 12:13 am 

    24/7 Neuter & Moderate, the DavySkum

  19. wounded lying juanP on Mon, 25th Mar 2019 4:44 am 

    Moderate & Neuter DavySkum on Mon, 25th Mar 2019 12:13 am

    24/7 Neuter & Moderate, the DavySkum

  20. Sunspot on Mon, 25th Mar 2019 9:58 am 

    The Saudis need more money – so their plan is to sell less oil and hope the prices go up. When you sell less…you make less money. Seems like a somewhat unusual plan. You don’t suppose it could have anything to do with soaring domestic use? Or…(gasp)…geological depletion??? Nah, couldn’t be, lol…

  21. Robert Inget on Mon, 25th Mar 2019 11:51 am 

    Lately I flirted with copper. (EV’s, PV’s, use tons)
    Copper would be so much more politically correct.
    I could own up to shiny goldish copper rather than the nasty black slippery stuff.
    Sunspot reminded me how it may be way early to be taking large copper positions at this time.

    Both copper and oil are finite, it’s wise to
    stop digging when one realizes one is in a deep deep hole.
    IOW’s because most humans feel the need to leave wealth behind, selling stuff at or below cost when one knows for sure your oil or copper will be worth more in the future.

    Most oil products lose future value once used.
    The exceptions, plastics for instance, have come to be something of a curse. Air quality, GH gases also an unpleasant after events.

    Copper OTOH can be recycled. Only untamed growth is needed for supply to tighten.
    This why copper has BEEN a bellwether for oil.
    Traders call it Dr. Copper. (Can DC cure the current slight drop in the PoO?)
    I believe it will, this time at least.

  22. Robert Inget on Mon, 25th Mar 2019 12:46 pm

    Trump signs away last US Middle East diplomatic influence.
    (The state of not supporting or helping either side in a conflict, disagreement, etc.; impartiality).

  23. Dredd on Mon, 25th Mar 2019 3:02 pm 

    The photo of the two princes of Exxon eration.

    Prince One: “I could do a live autopsy of a WaPo journalist and Prince Two would still lub me.”

    Prince Two: “I could Ruskie an election and the peeps would still lub me.”

    (Follow The Immunity)

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