The current volatility in world oil price was exacerbated recently when Saudi Arabia revealed it was producing oil at a near all time high of around 10 million barrels of crude per day, and a figure 350,000 bpd higher than that given to OPEC as its February output.
Since oil prices started to fall in June 2014, many analysts have expected OPEC’s biggest producer to eventually curb its output as it has done many times in the past to support prices. Yet Riyadh has so far opted to keep its output stable to protect market share against non-OPEC producers such as the US - where production has soared as a result of the shale boom - and Russia.
In fact, Baker Hughes recently reported that, as the rig count continues to decline in the United States, the Saudi rig count has spiked. Amin Nasser, Aramco's senior vice-president for upstream operations, said in March that the company had yet to decide whether to increase the rig number in 2015 from the record 212 currently in use.
Industry sources say that the OPEC kingpin is wisely looking beyond the current oil price slump to a time when crude could yet again be in high demand, but it’s difficult not to question who is really manipulating this situation.
Who is responsible for maintaining the low oil price? OPEC has refused to take responsibility, as Saudi Arabia’s oil minister said last week. Ali al-Naimi has called upon non-OPEC producing countries to cooperate with the organisation, which currently supplies 30% of the market, and cut their own production to improve prices.
Iran, home to the world’s fourth-largest proven oil reserves after Saudi Arabia, has criticised Riyadh on its decision to maintain production levels, claiming a conspiracy with the Western world to keep oil prices low in a bid to harm their economy, and put pressure on the nuclear deal talks which could see the Iranians re-enter the already over-supplied market with an additional one million barrels of oil per day.
Dominic Haywood, an oil analyst from Energy Aspects in London, reported that “around 20 million barrels of oil are stored offshore in Iran and will be ready for shipping in a month or two once sanctions are eased”.
It was difficult to avoid the what seemed to be an almost gleeful tone with which OPEC forecasted the possible decrease of US shale oil by the end of this year, as it questioned the ability of producers to withstand the dramatic collapse in oil prices.
If the true intention of OPEC, led by the Saudi’s, was simply to bloody the nose of the US shale industry, then that seems to have worked, but you could argue that Venezuela, Russia, Nigeria and have suffered more.
OPEC’s next scheduled meeting is once again in Vienna on 5th June, and current statements coming out from the organisation suggest it will refuse to cut production levels.
This has to be a concern. The current situation is not unlike that in 1986, when Saudi Arabia kept the oil taps fully open in a global glut and, like now, the world market was left to find its own level.
It took nearly 20 years then for demand to catch up with supply and push oil past the $40 mark. There are oil producing countries around the world which simply cannot wait that long again for the price to rise. So, rather than focusing on who is to blame for the problems of the oil industry now, maybe we should be asking what we can do to solve them – quickly...