OPEC insiders say Saudi Arabia looking to prop up oil prices

Delegates say world's top oil exporter may be adopting a change in tone after supporting price drop two years ago
OPEC insiders say Saudi Arabia looking to prop up oil prices
Saudi Arabias minister of energy Khalid A Al-Falih. (JOE Klamar/AFP/Getty Images)
By Reuters
Wed 13 Jul 2016 04:16 PM

OPEC delegates say comments from top exporter Saudi Arabia, which two years ago led the group to drop its historic role of supporting oil prices, are a change in tone and a sign the kingdom is looking - verbally for now - to prop up the market.

Khalid al-Falih, who took over this year from longserving Saudi oil minister Ali al-Naimi, told German newspaper Handelsblatt that an oil price higher than $50 is needed to achieve a balance in oil markets in the long term.

There is certainly no sign yet of an actual policy shift by Saudi Arabia, or of the kingdom cutting supplies to support prices. Indeed, Riyadh told OPEC it raised its output in June to within a whisker of a record high reached a year ago.

But OPEC insiders say Falih's comments, and a remark he made last month raising the possibility Saudi Arabia may return to its role of balancing oil supply and demand, contrasted with previous statements from Saudi oil officials.

"This a change in the Saudi position," an OPEC delegate from a major Middle East producer said of Falih's remarks. "Before, they did not mention a range of prices they were looking for."

"They are looking for a higher price, but they want a moderate price."

In May, Saudi oil sources said the kingdom would not return to the old pattern of cutting output any time soon to support prices. Naimi frequently said prices were determined by the market, without giving a preferred range.

The optimum oil price, Falih told the paper, lies somewhere in between $50 and $100.

Other delegates from the OPEC nations outside the Gulf, who had misgivings about OPEC's 2014 policy shift and would like higher prices, saw the Saudi minister's comments as a sign the kingdom may be wanting a stronger market.

"It's an indication," said a second OPEC delegate. "Is this a function of their cost of production and budget requirements?"

OPEC oil revenues collapsed since its November 2014 policy shift accelerated a drop in prices, which hit a 12-year low near $27 a barrel in January and are trading close to $48 - half the level of two years ago.

A third delegate, from an OPEC country which wants the exporter group to work more actively towards supporting prices, was encouraged by the Saudi minister's remarks.

"For sure, a decent price of oil is needed to have enough investment to avoid a supply crunch and a boom in prices a few years from now," this delegate said.

"So let us hope for the best. It is good that the Saudis are realizing, but after a huge loss for oil exporters."

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