Saudi Arabia’s oil minister Ali bin Ibrahim Al-Naimi has no concerns about current and future demand, he told delegates at IHS CERAWeek on Tuesday.
“The bottom line is that the world demands 90 MMbo/d and long-term this will increase,” he said.
Al-Naimi (pictured, right) urged all countries to work together, stating that Saudi Arabia has not declared war on the US’s shale market, and that Saudi is not trying to increase its market share – only meet its customer demand.
Al-Naimi noted that he has been in the industry so long that he’s seen oil at $2/bbl and $100/bbl, and that he survived peak oil. “I think I have a t-shirt somewhere with that on it,” he joked.
With respect to the current downturn, Al-Naimi commented that when oil was around $100/bbl, while that seemed reasonable, it was historically very high. And this prompted investment in what would have been previously considered uneconomic oil fields.
“This went from the Arctic, to Canadian oil sands, to Venezuela’s Orinoco tar sands, to deepwater frontiers,” he said. “It also led to the development of shale oil resources in some parts of the US. This resulted in robust global growth of conventional and unconventional oil supplies. And the price started to fall.”
When OPEC met in November 2014, Al-Naimi said there was discussion within the group of whether to cut production to combat the fall in oil prices.
“But the oil market is much bigger than just OPEC,” he said. “We tried hard to bring everyone together, OPEC and non-OPEC, to seek consensus. But there was no appetite for sharing the burden. So, we left it to the market as the most efficient way to rebalance supply and demand. It was – it is – a simple case of letting the market work.”
However, even Al-Naimi realizes that stock market speculation has a large effect on the oil price. When presenter Daniel Yergin asked why the price saw modest gains on Monday, Al-Naimi responded that it was due to the IEA’s latest report.
The IEA released a new report yesterday (22 February), which states that while oil prices should start to rise gradually once the market begins rebalancing, the availability of resources that can be easily and quickly tapped will limit the scope of rallies – at least in the near term.
Additionally, the IEA report sees 4.1 MMb/d added to global oil supply between 2015 and 2021, down from the total growth of 11 MMb/d seen in 2009-2015. The drop in supply growth is attributed to upstream investments drying up due to the current glut that is pressuring prices. Global oil exploration and production capital expenditures (capex) are expected to fall 17% in 2016, the IEA report says, following a 24% cut in 2015. The IEA notes that this would be the first time since 1986 that upstream investment has fallen for two consecutive years.
Al-Naimi said that while many have drawn parallels between this downturn and the one in 1986, he doesn’t believe they are the same.
“This is not the 1980s,” he said. “We are dealing with a challenging market that is much more sophisticated and complex. There are a lot of new players and financial instruments that simply didn’t exist 35 years ago.
“Each oil market cycle comes with some uncharted territory. Even as the global oil market has become more efficient and dynamic over the past several decades, it continues to deliver surprises. Some are welcome, some are not. Volatility and overshooting – both at the top and bottom of the market – remain key challenges,” he said.
In terms of rebalancing the market, Al-Naimi suggests letting he markets fix the problem. “We should allow markets to work, but we must also remain vigilant. We must seek to better understand changing market dynamics, and be ready to act when market failures and extreme volatility occur.”
So, when will the downturn end? Al-Naimi told Yergin, if he knew they would both be in Las Vegas.
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