A year on, as Opec ministers prepare to meet next week with oil languishing near $45 a barrel, senior Saudi officials have a different message. In recent weeks, in public forums and private briefings, they have emphasised the dangers of future supply shortages as the oil industry has slashed investment in new projects.
Prices fell further than they ever anticipated, they say, remarks that for many in the oil market imply the Opec kingpin wants the year-long oil rout to come to a close.
Saudi officials say they are not about to reverse the policy that saw them open the taps and prioritise their long-term exports over short-term financial gain. But behind closed doors they say they want prices to stabilise between $60 and $80 a barrel.
That level, they believe, would foster oil demand but not encourage too much supply growth from alternative sources — a goldilocks scenario. Market watchers say that by focusing on the future outlook the kingdom can slowly coax the price higher without abandoning its strategy.
“They have made their point and no one in the world has missed it,” says Nat Kern, at Washington DC-based consultancy Foreign Reports. “Prices have fallen a lot lower than they wanted to go and investment cuts are far steeper than they expected.”
Prince Abdulaziz bin Salman al-Saud, Saudi Arabia’s deputy oil minister and son of the king, has been at the forefront of the shift in messaging. In a speech in Doha this month he warned that the investment needed to ensure future oil supplies could not be achieved “at any price”.
“The scars from a sustained period of low oil prices can’t be easily erased,” he said.
Demand for Opec’s crude is expected to rise next year as production outside the cartel falls — a key pillar of the strategy. But Saudi officials are keen to temper the industry’s response to the price crash after more than $200bn in energy investments have been scrapped.
Mr Naimi said last week that the world will need $700bn in investment over the next decade to meet growing oil demand, which it estimates will increase by at least 1m barrels a day each year.
In many ways, Saudi Arabia is now being forced to present a counter narrative to the oil industry’s new mantra of “lower for longer” prices — that has taken hold as a result of Riyadh’s own policy and is being pushed by influential banks such as Goldman Sachs.
“The Saudis want to warn the market not to overdo it,” says Amrita Sen at consultancy Energy Aspects in London.
The kingdom is also showing signs of easing off. After raising production to a record 10.6m barrels a day in June — almost 1m b/d above the 2014 average — output was cut to 10.3m b/d by October, the latest data from Opec show.
While the reduction is partly driven by falling domestic demand, some question why the kingdom has not ramped up output further if winning customers is its main priority.
The kingdom is vying with Russia to be the top oil supplier to China and must prepare for the return of higher Iranian oil exports next year if sanctions are lifted. It already faces increased competition in India and Europe from record Iraqi exports, while the US could become a growing market again as shale production tails off. Saudi oil exports to the US have dropped 29 per cent in three years.
“It’s unclear to me why they would hold any barrel that they could produce back,” says Bob McNally, a former White House adviser and consultant at Rapidan Group.
One explanation is that Saudi officials are concerned that the world’s cushion of spare production capacity — that they largely maintain — has shrunk to about 2 per cent of world demand. They also question if the US shale industry can replicate the kingdom’s so-called “swing producer” role.
Saudi Arabia may also have good reason to talk up the price. An oil price averaging almost half the level enjoyed for the first four years of this decade has put pressure on domestic finances.
The kingdom has drawn on its foreign exchange reserves and plans to tap international debt markets to maintain social spending and meet higher defence costs as its war in Yemen drags on.
It also has to placate Opec peers, especially economically weaker members like Venezuela and Ecuador, which were struggling to balance their budgets even when oil was above $100 a barrel.
“They don’t want to see oil below $40 [when Opec meets] on December 4,” says Ole Hansen at Saxo Bank, adding that he believes the kingdom is trying to make a “verbal intervention” in the market, as it has done in the past.
“This is all really about buying time,” he adds. “Demand growth will eventually start to work off the glut, but there’s no point going bankrupt in the meantime.”http://www.ft.com/cms/s/0/4f3567a2-938d-11e5-b190-291e94b77c8f.html?ftcamp=published_links/rss/companies_energy/feed//product&utm_source=twitterfeed&utm_medium=twitter#axzz3sbY7havg