Long-term vision: Saudis to wait for oil market to rebalance?
Baku, Azerbaijan, Nov.24
By Leman Zeynalova – Trend:
Saudi Arabia is unlikely to take strong action to support oil prices over the coming years, according to the analysts of the UK Capital Economics consulting company.
“But we don’t think Saudis have abandoned their “market share” policy altogether and are unlikely to do so in the near future,” said the analysis obtained by Trend.
First, sealing a concrete deal with the rest of OPEC is not going to be plain-sailing, according to Capital Economics.
“Most notably, OPEC must still resolve the question of how to allocate production cuts across member countries, which has only become more difficult since September,” said the analysts. “This is because production has been recovering in OPEC countries that are reportedly exempt from the deal, which has made it harder for OPEC as a whole to cut output below its proposed ceiling.”
The second reason is that Saudi policymakers remain concerned that short-term action to support oil prices could threaten the country’s long-term position in the market, according to the analysis.
Third, the majority of the Saudi economy’s adjustment to low oil prices has already happened, said Capital Economics.
“The upshot is that Saudi policymakers tend to view the kingdom’s position in the oil market, as well as the demand for oil, over a longer time horizon than most other producers. Hence, they can afford to focus on protecting the country’s market share,” said the analysis.
Capital Economics thus believes that Saudi authorities are most likely to wait for the oil market to rebalance on its own accord.
In September, OPEC producers agreed during the informal meeting in Algiers to cut down the oil output to 32.5 million barrels per day (bpd) from current production of 33.24 million bpd.
How much each country will produce is to be decided at the next formal meeting of OPEC on Nov.30 in Vienna.