Saudis say they won’t cut oil production

Speaking at the annual IHS CERAWeek energy conference in Houston, Saudi Arabia’s oil minister said his country will not be cutting production. In the heartland of US oil, Ali bin Ibrahim Al-Naimi said higher-cost producers should leave the market first in order to address the global gut.

The high price of oil at the start of the decade, he said, had encouraged inefficient producers to grow their output

The high price of oil at the start of the decade, he said, had encouraged inefficient producers to grow their output. “The producers of these high-cost barrels must find a way to lower their costs, borrow cash or liquidate”, he said. “It sounds harsh, and unfortunately it is. But it’s the most efficient way to rebalance markets.”

He noted Saudi Arabia could and would still be able to profitably produce oil at $20 a barrel. “We don’t want to, but if we have to, we will”, he told attendees. This no doubt worried the many US oil executives in the room as most of the country’s producers would be unable to produce oil profitably at such low prices, and America has already seen a wave of shale oil producer bankruptcies. Al-Naimi, however, was quick to say the kingdom has not “declared war on shale”, and that his country welcomes “new, additional supplies, including shale oil”.

The minister also cited a lack of trust between oil producers as a reason a production cut “is not going to happen”. Mistrust between producers to follow through with output agreements has been a recurring theme in recent discussions. The fear is producers not adhering to a cut or cheating on output quotas – as many OPEC members did in the 1980s – will result in those sticking to the agreement losing market share.