Saudi Arabia’s new energy minister has said he would be cutting oil production in order to rise the prices amid a global over-supply, according to reports. It is said that at the World Energy Congress in Abu Dhabi Monday, Prince Abdulaziz bin Salman, who was designated by father King Salman Sunday, made the comment.
As America ramps up supply using fracking methods, oil prices have fallen, while fears of a global recession in the midst of its trade war with China have caused a decrease in demand.
Because both of these factors are outside of OPEC’s direct control, analysts have voiced doubts over how effective cutting production would be in bottoming-out the market.
However, Prince Abdulaziz appeared to swing his support behind further output reductions at the summit. ‘Cutting output will benefit all members of OPEC,’ he reportedly said.
After attending the World Energy Congress, the prince will lead a meeting of the OPEC+ alliance’s Joint Ministerial Monitoring Committee on Thursday.
Saudi is the de facto leader of OPEC and pumps about a third of the cartel’s oil. The OPEC+ group includes Russia, which produces some 11million barrels of oil per day, just shy of Saudi Arabia’s 12million.
In his first official comments since being appointed, Prince Abdulaziz told Al-Arabiya: ‘The pillars of our oil policy are pre-determined and will not change.’ America is on track to produce a record 13.4million barrels of oil per day by the end of the year, thanks largely to fracking technology.
The US generated about 12.5 million barrels of oil per day in May this year, with 8.5 million barrels coming from shale. Meanwhile, CNN noted that its exports from OPEC nations– including Iran, Iraq, and Venezuela– have dropped by 75% over the past decade.
In December 2018, the OPEC+ alliance decided to decrease production by some 1.2 million barrels per day-an agreement they expanded this year in June. The new factor is the trade conflict between the two largest economies in the world, whose tariff tit-for-tat has generated fears of a global recession that will undermine oil demand. The deliberations also coincide with stymied Iran and Venezuela manufacturing and slower US output development, meaning supplies are not excessively high.
‘US shale output growth does not have the same momentum as in previous cycles, and OPEC production is at a 15-year low, having fallen by 2.7 million barrels per day over the past nine months,’ Standard Chartered said in a commentary last month. ‘We think that the oil policy options for key producers are limited, for the moment,’ the investment bank said.
No choices will be taken at the conference on Thursday, but suggestions should be made in advance of an OPEC+ ministerial conference in December in Vienna. Rapidan Energy Group said that to stabilize the market, the alliance may need to cut production by an extra one million bpd. But deciding which Member States will bear the burden of any fresh reductions will be the issue.
Saudi Arabia, OPEC’s de facto leader and pumping around a third of the cartel’s oil, last time has taken on more than its fair share. It has also undergone a major shake-up in its oil sector, announcing the replacement of energy minister Khalid al-Falih with Prince Abdulaziz bin Salman in the early hours of Sunday morning ahead of a much-anticipated stock listing of state oil giant Aramco.