A positive tone shift in Saudi’s public oil market commentary failed to evoke animal spirits among oil traders Monday.
Oil prices were heading lower Monday morning, after Saudi Arabia’s cabinet stated it is prepared to work with OPEC peers and non-OPEC suppliers to stabilize global oil markets. Saudi’s voice in the market has been an important driver of near-term prices, but oil prices have already been fairly stable in the $40-$50 range (WTI) for three months. For now it seems the fundamental challenges in the oil market are too much to overcome with vague stability commentary.
A more explicit plan to lift prices through real production curbs could be a different story. A real policy shift is what’s needed, not a subtle tone shift. At this point in the downcycle, actions speak louder than words. Barclays said today that the statement doesn’t reflect any real policy shift by Saudi Arabia ahead of the December 4th OPEC meeting.
Interestingly, comments from Venezuela seemed to carry more weight than Saudi’s in early trading. Venezuela warned today that prices could fall into the mid-$20s next year if OPEC doesn’t act to curtail production at its upcoming December 4 meeting.
In their initial reactions to the commentary, both Brent and WTI were down early Monday morning- Brent by $0.12 (0.27%) at $44.54/bbl, and WTI by $0.63 (1.50%) at $41.27/bbl.
Brent lower Monday; Source: Bloomberg
As Is WTI; Source: Bloomberg
Saudi Stresses Commitment To Cooperation
Following its weekly meeting, Saudi Arabia’s cabinet stated Monday its commitment to work with its OPEC peers and non-group members to address the current oversupplied global oil market.
“The Cabinet stressed the Kingdom’s role in the stability of the oil market, its constant readiness and continuing pursuit to cooperate with all oil producing and exporting countries,” the statement, as reported by the Saudi Press Agency, said.
What is notable here, however, is the lack of specificity in this statement. Saudi did not say that it would move to cut OPEC’s 30 M/bpd recommended production ceiling, nor did it offer details as to what such collaboration would entail.
Saudi Oil Minister Ali Naimi
The Monday statement follows comments last Thursday of Saudi Oil Minister Ali Naimi that the Royal Kingdom is working with its OPEC peers and non-OPEC producers to address the world oil market.
“Saudi Arabia is a very reliable supplier. We cooperate with OPEC and non-OPEC countries to stabilize the market,” he said at a conference last week in Manama, Bahrain.
That traders are not rushing to buy crude this morning indicates that the “bearish status quo” is being maintained. Whereas in the past, when Saudi spoke, the market reacted, today this is not the case. Instead, Royal Kingdom’s OPEC peer Venezuela seems to be influencing traders more than the de facto head of OPEC.
Venezuela: If OPEC Doesn’t Act, 2016 Prices Could Fall Into “Mid-20s”
On Sunday, Reuters reported Venezuela’s oil minister Eugenio del Pino as saying on the sidelines of the Gas Exporting Countries (GECF) in Tehran that “OPEC has to do something very soon…We don’t agree with the position that says the market some way is going to dictate the price of crude oil. We don’t agree with that position of Saudi Arabia.”
He added, “Iran is announcing its production is going to increase as soon as they lift the sanctions and we need to do something. We (OPEC) cannot allow going into a war of prices. We need to stabilize the market.”
Venezuela’s oil minister Eugenio del Pino
In response to a question as to how low oil prices could fall next year if OPEC does not change its market share defense strategy, he reportedly said, “Mid-20s.”
On October 21, Venezuela proposed a so-called “equilibrium price” that could stabilize the market, Reuters reported del Pino as saying. He reiterated Sunday that this price- where future investments would be able to continue to replace a natural fall in output- is at the $88/bbl level.
The Venezuelan oil minister said depressed crude prices will impact future oil investments. This could mean not meeting future oil demand growth, which could yield an increase in prices down the road.
“And we don’t want that kind of cycle of low price and high price, it is not good for consumers or producers. We need to send to the market a signal of stabilization, and that signal of stabilization is not what we are doing now…. We are destroying the price of crude oil. The speculative market is the one that is controlling the market,” Reuters quoted him as saying.
Iran’s Rouhani Meets Venezuela’s Maduro