Saudi Oil Minister: Current Oil Price is “Perfect”
Saudi Arabian Oil Minister Ali al-Naimi asserted that at $70–80 per barrel, crude oil prices are in the “right range,” meaning that there is no need to curb production in an effort to cut into supplies, Bloomberg News reported on Saturday. Al-Naimi was in Cairo, Egypt, where he was preparing to attend a meeting of Arabian oil ministers.
“Inventories are coming down, the price is perfect, and all investors, consumers, producers—they’re all very happy,” al-Naimi said. His statements support the assumption that OPEC will not change its output quotas when it meets in the Angolan capital of Luanda on Dec. 22.
Kuwaiti Oil Minister Sheikh Ahmed Al-Abdullah Al-Sabah said yesterday that he expects OPEC members will leave production quotas unchanged at their annual meeting in Luanda. Officials from Algeria, Libya, and Qatar agreed.
OPEC curtailed crude production last year because the worldwide economic crisis reduced demand. In December 2008, OPEC announced a record production cut as global demand nosedived, and it kept quotas unchanged at three subsequent meetings this year.
However, some may dispute al-Naimi’s contention that refiners and consumers are happy with the current state of affairs. The refining business continues to be squeezed by a combination of inflated crude prices and extremely low product demand.
Consumers may be confused about why oil prices have risen 69 percent this year, from a record low of $32.40 a barrel one year ago, despite a record supply of oil. If the fundamentals of supply and demand were driving oil prices, crude could be much lower than it’s current price, possibly as low as $35 per barrel. Yet crude oil closed at $75.47 a barrel on the New York Mercantile Exchange on Friday.
China, among the world’s biggest oil consumers, announced on November 30 an agreement to reduce the carbon intensity of its economy by 40–45 percent by 2020. If China’s plan is implemented, the growth of its oil demand may be 4.5 million barrels per day less than it would be otherwise.
In addition, the global economy could remain stagnant, and demand for oil could remain low. At the same time, Russia and Nigeria continue to increase.
If oil speculators and investors conclude that the demand for oil will remain low, and reserves will remain high high, oil prices could very well go into freefall. Although that would be great for consumers, particularly over the short term, oil companies would quickly lose profits, which in the long term could be detrimental to everyone.
Oil companies might not want to invest money in developing new oil resources, such as West Africa’s burgeoning oil fields or Canada’s tar sands. And once the global economy picks up, which will eventually happen, production capabilities might not be able to match resurgent oil demand.