Saudi Oil Minister Targets $20 Per Barrel

25 Feb, 2016

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Saudi Arabian Oil Minister Ali al-Naimi surprised fellow members of the Organization of the Petroleum Exporting Countries on Tuesday when he said the kingdom was prepared to let oil prices slip to $20 a barrel—a level that would strangle some of the group’s own members. With Iran’s joining into the competition, large oil producers like Saudi are more likely to force the little birds out of the forest. US is actually one of the little birds whose oil sector will get heavily destroyed by current oil price level.

At a Houston conference drawing oil-company executives and officials from producing countries, Mr. Naimi ruled out coordinated production cuts across OPEC and non-OPEC nations to address an oversupply that has caused crude prices to drop 70% since June 2014. Oil supply is outstripping demand by a million barrels a day.

Mr. Naimi said market forces would rebalance supply and demand, pushing prices low enough to force cutbacks from producers in places outside the Middle East, where some projects need oil prices of $60 per barrel or more to make a profit.

“Inefficient, uneconomic producers will have to get out,” Mr. Naimi said. “This is tough to say and that’s a fact. “We can coexist with $20. We don’t want to, but if we have to, we will.”

Persian Gulf Arab states like Saudi Arabia, the United Arab Emirates and Kuwait “can make lots of money” with oil prices in the range of $20 to $30 a barrel, said Tim Weller, the chief financial officer of U.K. oil-services provider Petrofac Ltd. in a separate a conference call Wednesday.

Mr. Naimi said a production freeze would help stop any increase in supplies as demand naturally rises. But he nodded to estimates which are basically meaning the supply will get well controlled and force the price back and those estimates are the main force that lift the price up in this week from the International Energy Agency and bank analysts that it wouldn’t happen quickly.

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