Former Saudi oil boss says it can cope with low prices

[klr]

... for years:

http://www.bbc.co.uk/news/business-30876920

Saudi Arabia can cope with low oil prices for "at least eight years", Saudi Arabia's minister of petroleum's former senior adviser has told the BBC.

Mohammed al-Sabban said the country's policy was to defend its current market share by enduring low prices.

"You need to allow prices to go as low as possible in order to see those marginal producers move out of the market," he said.

Mr al-Sabban advised the ministry for 27 years, leaving last year.

Saudi Arabia, the largest producer within the Opec oil producers' cartel, has repeatedly said that it will not cut output to try to boost the oil price.

Mr al-Sabban said Saudi Arabia's "huge financial reserves" would enable it to cope with the low oil price.

The country is now in the process of cutting government spending.

Without these cuts, Mr al-Sabban said, Saudi Arabia could not cope with low oil prices for more than four years.

Falling further

Oil prices have more than halved since June.

The dramatic fall has been blamed on a sharp increase in production from North American shale companies, which has increased the supply of oil and gas, helping to depress prices.

Also undermining the price of oil are slowing global economic demand and a rising dollar against a range of other currencies.

The latter can flatter the oil price, which nonetheless can remain the same price in a local currency that buys fewer dollars.

On Monday, Brent crude was trading at around $49.40 a barrel, down 77 cents, and US crude was trading down 74 cents at $47.95 a barrel.

The falls came after Saudi Arabia said again on Sunday that it would not cut output to prop up oil markets.

Referring to countries outside of Opec, Saudi oil minister Ali al-Naimi said: "If they want to cut production they are welcome. We are not going to cut, certainly Saudi Arabia is not going to cut."

[JimC]

Starving its competition...

[klr]

Exactly. Who needs dark conspiracies when market forces, self-interests and naked greed explain everything?

[mistermack]

The Saudi and Kuwaiti royals must be getting near the point now, where they make more money from their investments, than from selling raw crude.
So, if they keep the oil price low, the world economy will pick up, and their investments will be making more money.

They might actually make more money now, out of a low oil price.
Which is shit news for Russia, and Iran, and Venezuela etc.

[Calilasseia]

Indeed, since they've already made a metric fuckton of money from oil, and diversified, they can afford to pursue naked self-interest and tell the rest of the world to suck their cock.

[JimC]

The rest of the world can suck my cock too!

[Warren Dew]

Exactly. Who needs dark conspiracies when market forces, self-interests and naked greed explain everything?

This is more market manipulation than market forces.

[JimC]

Exactly. Who needs dark conspiracies when market forces, self-interests and naked greed explain everything?

This is more market manipulation than market forces.

Yes, but in a form that is going to be very acceptable to most of the world - few other than their competitors are going to complain about lower prices at the pump. Capitalists are free to set whatever price they want for the goods they produce, as long as they don't collude with others to maintain an artificially high price, which is certainly not the case here...

[Svartalf]

The rest of the world can suck my cock too!

Careful, do you want Tatt to take you up on that?

[klr]

The rest of the world can suck my cock too!

Careful, do you want Tatt to take you up on that?

It probably means something completely different in Melbourne.

[mistermack]

Yes, but in a form that is going to be very acceptable to most of the world - few other than their competitors are going to complain about lower prices at the pump. Capitalists are free to set whatever price they want for the goods they produce, as long as they don't collude with others to maintain an artificially high price, which is certainly not the case here...

There is the danger though, that someone is deliberately killing off the competition, so that once they are gone, they can progressively increase their profits without getting undercut, by a rival that is growing in size.

This is nothing new. Big players do it all the time. Often getting together in back rooms, agreeing to pricing designed to bankrupt newcomers to their cartel-governed market.
Saudi and Kuwait are big enough to do that, without help from anyone.

Some of the marginal oil fields, once they have become economic and been closed, can never be economically re-opened. They are already saying that about many North Sea oil wells. It probably applies all around the world.

[JimC]

Yes, but in a form that is going to be very acceptable to most of the world - few other than their competitors are going to complain about lower prices at the pump. Capitalists are free to set whatever price they want for the goods they produce, as long as they don't collude with others to maintain an artificially high price, which is certainly not the case here...

There is the danger though, that someone is deliberately killing off the competition, so that once they are gone, they can progressively increase their profits without getting undercut, by a rival that is growing in size.

This is nothing new. Big players do it all the time. Often getting together in back rooms, agreeing to pricing designed to bankrupt newcomers to their cartel-governed market.
Saudi and Kuwait are big enough to do that, without help from anyone.

Some of the marginal oil fields, once they have become economic and been closed, can never be economically re-opened. They are already saying that about many North Sea oil wells. It probably applies all around the world.

Fair point.

[Warren Dew]

Yes, but in a form that is going to be very acceptable to most of the world - few other than their competitors are going to complain about lower prices at the pump. Capitalists are free to set whatever price they want for the goods they produce, as long as they don't collude with others to maintain an artificially high price, which is certainly not the case here...

There is the danger though, that someone is deliberately killing off the competition, so that once they are gone, they can progressively increase their profits without getting undercut, by a rival that is growing in size.

In this case, I suspect the reasons for starving Iran are political rather than economic.

[mistermack]

Yes, but in a form that is going to be very acceptable to most of the world - few other than their competitors are going to complain about lower prices at the pump. Capitalists are free to set whatever price they want for the goods they produce, as long as they don't collude with others to maintain an artificially high price, which is certainly not the case here...

There is the danger though, that someone is deliberately killing off the competition, so that once they are gone, they can progressively increase their profits without getting undercut, by a rival that is growing in size.

In this case, I suspect the reasons for starving Iran are political rather than economic.

Yeh, but those reasons have existed for ages and ages, without this happening.
What's different now, is the shale industry. The Saudis are deliberately making that uneconomic, and hoping that the people who have put big money into it will go bust.

But of course, it helps that Iran and Russia are losing money too.
In some ways, it's probably a good thing for these countries in the long run.
If you become dependent on oil money, that can kill off local enterprise, by pushing wages past the economic level. So you end up dependent on imported goods and at the mercy of the oil price.

As far as Russia goes, the weakened Ruble should make local industry more viable, and a less shaky economy should result eventually. But they will feel the pinch for a while.
Although some of that will be offset domestically for the government, because each barrel of oil is still worth about the same in Rubles as it used to be.

[pErvinalia]

Exactly. Who needs dark conspiracies when market forces, self-interests and naked greed explain everything?

This is more market manipulation than market forces.

And you think there is a difference?