U.S. And Saudi Representatives Discuss Energy Markets

Saudi Arabian oil minister Ali al-Naimi has begun opening up a bit more about Opec and the kingdom’s decision to leave oil production quotas unchanged at the producer group’s meeting last month. Since that decision – and price cuts on behalf of individual Opec members – benchmark oil prices plummeted and are now down about 50% from June.

Previously, al-Naimi had been somewhat evasive regarding Saudi and Opec strategy, saying “Why should I cut production?”…“This is a market and I’m selling in a market. Why should I cut?”

He is now shedding more light on the situation, explaining that Opec could not cut alone without other major non-Opec producers like Russia and Mexico because global supply and demand are too far out of balance. He also questioned the extent to which a production cut – even one made in conjunction with non-Opec producers – would support prices given current market fundamentals.

“In a situation like this, it is difficult, if not impossible, for the kingdom or for OPEC to take any action that would reduce its market share and increase the shares of others, at a time when it is difficult to control prices,” he said. “We would lose on both market share and price.” – As reported by Reuters

Al-Naimi said he believes the current situation is temporary and that once economic growth in the world’s major oil consuming economies strengthens, oil demand will rise as well, thus supporting prices. The question now is how long will it take for that economic growth to return and how far will oil prices fall in the meantime?