With crude markets traveling a full circle, an eventful year is coming to a close. From its June peak of $116 a barrel, and after fluctuating above the three digit mark for over eight months of the year, crude has finally shed almost half its value. And in the process, the $100 era seems to have gone and for good. The price of a barrel of oil first broke the $100 mark in 2008, and has been frequently crossing it in the six years since then. But the norm of the last several years now is changing, pundits are conceding. When asked by the Middle East Economic Survey, if oil markets would ever lift prices to $100 a barrel again, industry veteran, the wheeler and shaker of the crude market today, Saudi Arabian Minister of Petroleum and Mineral Resources Ali Al-Naimi responded, “we may not.” Not too long ago deemed a “fair” price by many major producers, $100 a barrel crude apparently also helped bring a number of new, high cost resources online, generating to the detriment of the markets, a glut like scenario, many felt. And it was in this perspective that in recent weeks and months, Gulf, OPEC officials have been making clear that their oft-repeated mantra of $100 a barrel crude as a “fair” price has been set aside, at least for the foreseeable future. Naimi's blunt comment to MEES on the issue was just an official indication of the realization at the top of the crude fundamentals in play at the hour. With conspiracy theories making the rounds, Saudi Arabia has also opted to play out cards, rather straight. While talking to MEES, without mincing words, Naimi reiterated, OPEC will not cut production even if the price falls to $20 a barrel. “As a policy for OPEC — and I convinced OPEC of this, even Al-Badri is now convinced — it is not in the interest of producers to cut their production, whatever the price is. “Whether it goes down to $20, $40, $50, $60, it is irrelevant,” he said. And this was new, confirming in rather bold terms that the traditional OPEC strategy of keeping prices ‘fair' by limiting oil output has been replaced with a new policy of defending the cartel's market share — and — at all costs. This represents a “fundamental change” in policy that is more far-reaching than any seen since the 1970s, Jamie Webster, oil analyst at IHS Energy was quoted as saying. “We have entered a scary time for the oil market and for the next several years we are going to be dealing with a lot of volatility,” he added. “Just about everything will be touched by this.” And Naimi was rather articulate in presenting his viewpoint, underlining if the Kingdom (and the OPEC) reduced output, “the price will go up and the Russians, the Brazilians, US shale oil producers will take my share”. And he had a point to make. Efficient producers needed to be encouraged and not discouraged. “We want to tell the world that high efficiency producing countries are the ones that deserve market share,” he emphasized. “Is it reasonable for a highly efficient producer to reduce output, while the producer of poor efficiency continues to produce?” Naimi counter asked the MEES interviewer. Naimi also added it was “unfair” for the world to expect OPEC, with a market share of around 40 percent, to reduce output. Others needed to be a part of the arrangement too, he underlined. “The Kingdom of Saudi Arabia and other countries sought to bring back balance to the market, but the lack of cooperation from other producers outside OPEC and the spread of misleading information and speculation led to the continuation of the drop in prices,” he said at an energy conference in Abu Dhabi last week. “Let the most efficient producers produce.” He also sought to rebut broader claims that Saudi Arabia has been using the oil price as a political tool. “The talk about conspiracy by Saudi Arabia for political motives?.?.?.?is baseless and shows lack of understanding,” he said. “The [oil] policy of the Kingdom is based on a strict economic basis.” Speaking at the conference, Suhail Bin Mohammed Al-Mazroui, the UAE energy minister, said one of the principal reasons for the price fall was “the irresponsible production of some producers from outside the OPEC”. Mazroui also echoed a previous statement, saying “OPEC was not a swing producer” and “it's not fair that we correct the market for everyone else.” Ahead of last month's OPEC meeting in Vienna, Mazroui told the Financial Times: “Yes, there is an oversupply but that oversupply is not an OPEC problem.” He added that non-OPEC countries and high-cost production — such as oil from US shale fields — should play a role in balancing the market. Lower prices would help cut excess supplies from more expensive oilfields while preserving the share of lower-cost OPEC producers as well as induce demand. The “market will fix it”, he had said in November. Ali Al-Omair, Kuwait's oil minister, too said there was no need to cut production. Qatar Energy Minister Mohammed Al Sada also hit out at rising rates of crude production outside OPEC, saying the oil market is over-supplied by 2m barrels a day. This is almost four times the 540,000 barrel a day surplus recent International Energy Agency (IEA) data highlighted in its global daily production estimate of 93.6m barrels. Al Sada hinted that higher-cost methods of oil production — such as shale in the US — could be in for a long wait until prices climb back to levels where they make economic sense for them. “We are now in a provisional, correctional period,” Al Sada told Bloomberg. “Markets have mechanisms that will bring stability. We don't know exactly how long it will take but it will stabilize because the current prices will separate the efficient producers from the producers who have high costs.” Analysts say that the altered OPEC policy seems challenging the high-cost sources of crude — from the oil sands of Canada and US shale to deepwater Brazil and the Arctic — in an attempt to face down the threat they pose to its market share. The crude world is changing — and — for ever. A new global energy order is taking final shape!
