The world’s most powerful oil-producing country is determined to keep down the value of oil to try to reassert the dominance of Opec against its new rivals, the shale companies in North America.
Saudi Arabia’s oil minister, Ali al-Naimi, said Opec’s latest ministerial meeting in Vienna on Friday had been amicable, despite fears among some cartel members that a persistent oversupply of crude could push prices even lower.
The price of the key Brent blend crude fell $1.62 to $62 a barrel after the meeting and compares with the $115 seen 12 months ago before traders panicked about the scale of US output growth and faltering demand.
In fact, prices had been steadily recovering this year from a $45 low in January but continued gloom that they could remain low this year has led to major spending cuts by the oil industry in Aberdeen and other energy hubs.
Meanwhile, the price of unleaded petrol for cars has fallen to about 113p a litre in the UK compared with 130p a year ago. Diesel prices are down from about 135p a litre to 118p, according to the AA motoring organisation. Lower transport costs has helped many British industries and reduced the country’s inflation rate.
Opec met last November and turned its back on oil producers’ usual reaction to lower prices, which is to rein in their own output. Saudi Arabia and some key cartel allies were convinced that Opec’s interests were best served by keeping prices low, holding on to customers and trying to shut down US shale rivals, which face higher costs.
The strategy has continued and the Saudis insisted everyone was happy. “You’ll be surprised at how amicable the meeting was,” Naimi said as he left Opec’s headquarters in Vienna.
He confirmed the group had agreed to stick to “the same ceiling”, even though some members of the oil cartel have been cheating on their quotas. Official production is 1m barrels higher than the 31m-barrel-a-day official output target.
“The market is in a transition phase, it is not stable,” the United Arab Emirates’ oil minister, Suhail bin Mohammed al-Mazroui, told Reuters before the meeting. “We are optimistic about what happened in the first quarter in terms of [the price] correction.”
Low oil prices do not worry Saudi Arabia, which has $300bn (£200bn) in its sovereign wealth funds, but are devastating for other Opec members such as Iran, Venezuela and Nigeria, whose public finances are much weaker.
Budgets of exporter countries have taken a hit while $100bn of spending on new global oil projects has been put on hold or cut by the world’s largest energy groups – some of this in the UK’s North Sea oilfields.
Oil ministers from Iraq, Venezuela and Angola said this week that a price of $75 to $80 a barrel would be their preferred level.
But they will have to hope that global demand continues to improve to absorb the supply from Iran if a deal with the west over its nuclear programme is finalised later this month, which may end western sanctions on its oil exports.
This article was written by Terry Macalister, for theguardian.com on Friday 5th June 2015 17.57 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010