Saudi Arabia losing influence on oil prices

Saudi Arabia losing influence on oil prices
16:07 8 Dekabr 2015
Ölkə mətbuatı
A- A+

Baku, Azerbaijan, Dec. 8

By Aygun Badalova - Trend:

Saudi Arabia’s influence over oil prices has waned, Jason Tuvey, Middle East Economist at British economic research and consulting company Capital Economics said in a report obtained by Trend.

“For decades the Kingdom has been the swing producer in the market but this power has declined,” Tuvey said.

But now, he believes, the floor for oil prices is now heavily influenced by the break-even price of shale production, which has come down significantly in recent years, probably to around $50 per barrel.

Economist said that it is unlikely that the Kingdom is seriously considering abandoning its current oil market strategy, which proposes no to cut its oil production in order to keep its market share.

“Compared with other major oil producers, Saudi Arabia is in a strong position to weather low oil prices, and so it can afford to take a long-term view of the oil market,” Tuvey said.

There are also signs that this strategy is bearing fruit, according to the economist. “Energy consumption in advanced economies has picked up strongly. Shale production in the US is starting to tail off. And major oil companies have shelved a number of projects elsewhere in the world,” he said.

Moreover, Riyadh is unlikely to agree to cut production unless other producers, both within and outside OPEC, cooperate, according to Tuvey.

“But as many of these countries are in a worse financial situation than Saudi Arabia and would be unwilling to share the burden of production cuts, reaching such an agreement would prove extremely difficult,” he added.

OPEC members failed to reach an agreement on production ceiling on Dec. 4.

Saudi Arabia is one of the OPEC members that have seized the moment to produce more than their quota as Iran's production has shrunken under sanctions.

Saudi Oil Minister Ali bin Ibrahim Al-Naimi rejected Iran's demand for cooperation by saying Dec. 4 that the market can absorb Iran's surplus production and OPEC members do not need to reduce their output.

Follow us on Twitter @TRENDNewsAgency