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Saudi happy for prices to take the strain

Published Wednesday, February 24th, 2016

Saudi oil minister Ali al-Naimi made his eagerly awaited speech at the CERA conference in Houston yesterday. There was nothing new but it provided an important summary of the Saudi position. The market correctly interpreted the presentation as bearish. Key comments were:-

  • “The oil market is much bigger than just OPEC”.
  • Saudi Arabia has “tried hard to bring everyone together, OPEC and non-OPEC, to seek consensus. But there was no appetite for sharing the burden”.
  • Therefore “we left it to the market as the most efficient way to rebalance supply and demand”
  • “Anything we can do to make downward [price] cycles shorter and less extreme is beneficial. This includes seeking to allow markets to work with a minimum of meddling”.
  • Saudi Arabia is committed to meeting the demands of its customers, investing in spare capacity and seeking stable oil markets. It seeks consensus and remains “open to co-operative action”. It is “not chasing a greater market share”.
  • Climate change “poses a much greater existential challenge than cyclical price movements”.

Al-Naimi’s remarks punctured an oil price rally that has lacked substance. Brent closed -$1.42 at $33.27, down nearly $2 bbl from the high of the day. WTI closed at $31.87 (-1.52). After the close the API weekly stock figures revealed a big crude build of 7.1 million bbls with +300,000 bbls at Cushing and accompanied by a 600,000 bbl gasoline build and 300,000 distillate draw.

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Posted by David Hufton