Saudi Arabia, the world’s biggest oil exporter, is telling the market it won’t cut output to lift crude back to $100 a barrel and that prices must fall further before it does so, according to consultant FACTS Global Energy.
Swelling supplies from non-OPEC producers drove Brent crude into a bear market on Oct. 8 amid waning demand from China, the world’s second-largest importer. The Organization of Petroleum Exporting Countries meets Nov. 27 to consider changing its production target in the face of the highest U.S. crude output in almost 30 years.
“Production of shale oil in the U.S. will not be hit as hard as the Saudis think” by the price decline, FGE Chairman Fereidun Fesharaki said at a conference today in Doha, Qatar. Producers in the U.S. “can withstand a lot of pressure” by reining in their operating costs before they curb investment in new wells and production, he said.
Crude could drop to between $60 and $80 a barrel and stay within that range there for about six months until global production aligns with demand, Fesharaki said at the Condensate & Naphtha Forum. Oil in that range is the “right price” to balance the market, Fesharaki said.
Brent crude has tumbled 26 percent since June 19, when it closed at the high for the year, to less than $86 a barrel today. That slide exceeds the 20 percent fall that is a common definition for a bear market.
Oil prices will have to fall to less than $60 before U.S. producers curtail output, Lucian Pugliaresi, head of the Washington, D.C.-based Energy Policy Research Foundation, said at the same conference.
Saudi Arabia was “clever” to vary its crude output between 8 million and 10 million barrels a day to compensate for plunging production in Libya after a rebellion toppled that nation’s former leader Muammar Qaddafi, Fesharaki said. The kingdom, which pumped 9.75 million barrels a day last month, is now unwilling to produce less than 8 million barrels daily to defend prices near $100, and other OPEC members would have to share the burden of any output cut the group may make, he said.
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