Saudi oil minister Ali bin Ibrahim Al-Naimi said Tuesday that there is more to unite energy industry participants than to divide them, but lack of consensus led OPEC to embark on a policy that has sent prices spiraling.
Naimi made his comments during a keynote speech at the IHS CERAWeek conference in Houston, his first US appearance since Saudi Arabia spearheaded OPEC’s current high production policy more than a year ago.
“We have not declared war on shale or on production from any given country or company, contrary to all the rumors you hear and see,” he said.
“We are doing what every other independent representative in this room is doing. We are responding to geology and market conditions and seeking the best possible outcome in a highly competitive environment.”
The market will determine where on the cost curve the marginal oil production lies, he said. Drillers with higher costs must find ways to become more efficient, borrow cash, or liquidate, he added.
Oil prices have cratered more than 70 percent since mid-2014 as near-record oil production by OPEC members, Russia, the United States and other producing nations created a massive crude glut.
The rout accelerated after OPEC announced in November 2014 it would not cut production to prop up prices. Instead, members have continued to pump unabated in a bid to defend market share and pressure higher-cost producers.
“The oil market is much bigger than OPEC. We tried hard to bring everyone together — OPEC and non-OPEC — to seek consensus. There was no appetite for sharing the burden, so we left it to the market as the most efficient way to rebalance supply and demand,” Naimi said.
“It was, it is, a simple case of letting the market work,” he added.
Last week, Saudi Arabia, Russia, Qatar and Venezuela proposed an output freeze that would cap production at January levels. Russian Energy Minister Alexander Novak said Saturday the deal, which is contingent on other producers participating, should be finalized by March 1, Reuters reported.
On Monday, OPEC Secretary General Abdalla Salem El-Badri told CNBC that oil producers are still “feeling the water” over a possible deal to freeze production, and it is “wait and see” as to whether it leads to any other type of deal.
Naimi has been Saudi Arabia’s minister of petroleum and mineral resources since 1995. Prior to that, he ran the state-run oil giant Saudi Aramco, which is believed to be the world’s most valuable company.
Lower prices have forced Saudi Arabia’s leaders to tap debt markets, draw down foreign reserves, pare back the budget, and announce subsidy cuts that have helped maintain domestic stability.
“These are unsettling remarks and they come soon after comments from Iran [over production cuts],” John Kilduff Partner of Again Capital told CNBC-TV18, adding that the Saudi oil minister had also ruled out a production cut.
“So, they are sticking to their plans. This is going to cause more downward pressure on prices until we see a greater response not just from what is going on in the US shale patch but also from OPEC and Russia.”
– With inputs from CNBC-TV18.