PW Español




PW Live



Very usefull links



PW
Bookstore





Institutional
links


OPEC







PW
Business Partners

 


IRAQ OIL THE FORUM

 


Blogspots

The Global Barrel

Tiempo Cultural

Gustavo Coronel

Iran Watch.org

Le Blog des
Energies Nouvelles

News Links

AP

AFP

Aljazeera

Dow Jones

Reuters


Bloomberg

Views and News
from Norway

 

 

 


Editorial/Opinion

 

 

Nawaf Obaid: Determinants of a new Saudi oil policy

 


After OPEC's announcement last week that it would not be cutting production, oil prices fell dramatically. Given the significant global oversupply due to the U.S. shale oil boom and decreased demand in China and Europe, this decision marks an historical moment in which OPEC relinquishes its supply-based approach to price manipulation and embraces a market-based approach. Wisely, the organization has shown that it is aware it can no longer dictate oil prices by attempting to control the market.

As the leader of OPEC, Saudi Arabia is the engineer of this new approach. Indeed, at the OPEC summit the kingdom blocked calls from OPEC and non-OPEC producers, such as Russia , Venezuela , Mexico and Iran, who were urging production cuts in the hopes of raising prices in order to stabilize their oil revenues. It is important to understand why Saudi Arabia is so staunchly advocating this new market-based approach.

The kingdom holds about 25 percent of the world's oil reserves, 85 percent of global spare production capacity, and is the world's largest crude exporter by far. Through a series of strategic assessments over the past year, the Saudis determined that their best mid- to long-term objective is to sustain market share by allowing the price of oil to drop to a level that better reflects the realities of the global markets . Further, they will be able to operate in an environment over the next three to five years that could see prices fall as low as $60 per barrel.

Lower prices are acceptable to the kingdom because of a well-managed foreign reserves portfolio that over the past ten years has permitted its central bank, SAMA, to accumulate over $750 billion in assets. Saudi Arabia holds about another $150 billion in various government funds, such as the Public Investment Fund. Thus, with $900 billion in foreign reserves (third only to China and Japan), no foreign debt, and a miniscule public debt of under 3 percent of gross domestic product, the kingdom's public finances are incredibly resilient.

  Such is not the case with various other oil-producing countries. Russia , Venezuela , Mexico , Iraq, Iran and Nigeria all opposed the Saudi decision because their government coffers are struggling greatly to overcome the loss in oil revenues. Most of these nations have small foreign reserves, their economies are stagnant or shrinking, and many of them face severe civil unrest.

 

But Saudi Arabia knows that the landscape of global oil production is changing. In short, the North American shale oil boom is decreasing the importance of traditional producers and creating increased global supply. The kingdom, confident of and able to trust the free market, firmly believes this trend should be supported. Not only has it helped ease fears of overdependence on Middle Eastern crude, but as Saudi Aramco's CEO Khalid al-Falih recently said: “Oil is going to be the fuel of choice, in terms of its overall performance, for an extended period of time, and we need to manage it, and we need to invest in it.” This means the kingdom's interest lies in an oil market that is stable over the long term, exists in harmony with the global economy , and encourages technology and policy choices that maintain oil's importance. Trusting in the market is the best way to achieve these objectives.

This market-based approach is good for the kingdom's long-term outlook in other ways as well. Lower prices negatively influence two of the kingdom's main adversaries: Russia and Iran. A price war would make numerous future North American shale oil projects uncompetitive due to high production costs and thus relieve some of the competitive pressures on OPEC in the long run. Should prices go as low as $60 per barrel, competitors to Saudi crude – which has very low production costs – will find it hard to maintain market share.

The kingdom's actions last week are going to have a huge effect on the political situation in the Middle East. Iran will come under unprecedented economic and financial pressure as it tries to sustain an economy already battered by international sanctions. The political transformations in Iraq and Syria will also be deeply influenced by the lower prices being fostered by the Saudis. Needless to say, the kingdom has seriously considered the pros and cons of its decision. It is not only cognizant of the present political ramifications, but it is fully committed to a long-term strategy that will preserve its predominance in the global oil trade.

With decades of experience consistently and conservatively managing the most formidable petroleum infrastructure in the world, the Saudi leadership has a unique responsibility toward global economic and financial security. And while the Saudis are now embracing the vagaries of the market, they are also planning ahead. They will continue to massively invest to maintain their 12.5 million barrels per day of sustained production capacity that ensures world energy stability. They remain ready to step in, should there be a global disaster, to stabilize the markets with an average sustained 2 million barrels per day spare capacity potential. And they fully intend to maintain a supply chain that is predictable, secure, and dispersed, so that the global economies can continue to depend on the oil market for their vital energy needs to empower their developments for decades to come.


Nawaf Obaid is a visiting fellow at Harvard University's Belfer Center for Science & International Aaffairs. Currently, he is a counselor to both Prince Mohammad bin Nawaf, Saudi ambassador to the United Kingdom, and Prince Turki Al Faisal, who served as Saudi ambassador to the United States. He is a graduate of Georgetown University's Edmund A. Walsh School of Foreign Service and has a Masters in Public Policy from the Harvard Kennedy School. He began his doctoral work at MIT's Political Science Department and is currently completing work on his Doctorate of Philosophy in War Studies at London University (King's College). Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by The Reuters news services, on 12/03/2014. Petroleumworld reprint this article in the interest of our readers. Petroleumworld does not necessarily share these views.

All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.

Use Notice:This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.

All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by theoriginator.

Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law.

If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. Internet web links to http://www.petroleumworld.com are appreciated

Copyright© 1999-2009 Petroleumworld or respective author or news agency. All rights reserved.

We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors.Internet web links to http://www.petroleumworld.com are appreciated

Petroleumworld welcomes your feedback and comments,
share your thoughts on this article, your feed. back is important to us!

Petroleumworld News 11/28/2014

We invite all our readers to share with us
their views and comments about this article.
Follow us in : twitter / Facebook
Send this story to a friend Write to editor@petroleumworld.comBy using this link, you agree to allow PW
to publish your comments on our letters page.

Any question or suggestions,
please write to: editor@petroleumworld.com

Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8 +/ 800x600 pixels


 

 


Pan American Mature
Fields Congress,
Jan 20 - 22, 2015



Mexico Gas Congress
February 24-26, 2015




ow.ly/ziUh0

TOP

Editor & Publisher:Elio Ohep F./Contact Email: editor@petroleumworld.com

Contact:
editor@petroleumworld.com/ phone: Office (58 212) 635 7252,
or Cel (58 412) 996 3730 / (58 414) 276 3041 / (58  412) 952 5301


CopyRight © 1999-2010, Elio Ohep F.- All Rights Reserved. Legal Information

- CCS Office Tele
phone/Teléfonos Oficina: (58 212) 635 7252

PW in Top 100 Energy Sites


Technorati Profile


CopyRight © 1999-2010, Elio Ohep F. - All Rights Reserved.
This material may not be published, broadcast, posted online, rewritten or redistributed by any type of means, except with permission of the author/s

The information in this web site is proprietary and is protected under United States and International Copyright and Trademark laws. No part of this web site may be reproduced or transmitted in any form by any means whatsoever, except with permission of the author/s..

Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law. If you wish to use copyrighted material from this site for purposes of your own that go beyond
'fair use', you must obtain permission from the copyright owner.
Any use of this site or its material, in any form, without the express prior written consent of the author, is prohibited by law and is subject to legal action. Legal Information

Top 100+

Technorati Profile
Fair use notice of copyrighted material:

This site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from Petroleumworld or the copyright owner of the material.