OPEC kingpin Saudi Arabia’s abrupt about-face on oil output Monday, calling for an increase to counter criticism and ease crude prices that have hit 13-year highs, is in its own best interests, analysts said.
Deutsche Bank analyst Adam Sieminski said in London that the announcement was aimed at curbing criticism directed at OPEC and Saudi Arabia — a US ally — and to avoid stunting global economic growth on which the kingdom’s future oil revenues depend.
“I think they’re doing what’s in their own best interest,” he summed up.
Saudi Oil Minister Ali al-Naimi had said earlier in Riyadh: “It is certain that the kingdom believes that increasing OPEC’s production ceiling is essential to keep supply and demand balance.
“We in the kingdom estimate the required increase of the ceiling to be no less than one and a half million bpd (barrels per day),” he added in a statement released by the oil ministry.
The announcement came in sharp contrast to comments by other members of the Organisation of Petroleum Exporting Countries over the past few weeks.
Those have generally laid the blame for soaring crude oil prices on geopolitical factors, poor stock management, market speculation and saturated refining capacity in the United States.
Now, the Saudi minister said: “It is apparent that demand, especially that of Asia, has and will continue to increase in the second half of this year.”
The world’s biggest oil producer had expected demand to fall back after the end of winter in the northern hemisphere, which led OPEC to curb output to 23.5 million bpd on April 1, noted CDC Ixis research director Moncef Kaabi.
On Friday, however, crude prices shot past the symbolic 40 dollars a barrel level, before settling back Monday on Naimi’s comments.
The last time crude prices were at that level was in October 1990, two months after Iraq’s invasion of Kuwait.
“A lot of politicians are saying that 40-dollar oil is dangerous for the global economy,” Sieminski said.
“Partly the Saudis are responding to that, but also to the fact that if there is a downturn in the global economy caused by these prices, eventually it hurts Saudi Arabia the most.”
He recalled that Iran had sent a similar message a few days ago and that no one would suspect Teheran of seeking to please Washington.
Such declarations remain largely psychological, moreover, since OPEC has surpassed its own production quotas for several months.
As a result, the announced increase is more a matter of reconciling OPEC’s statements with actual production than of actually pumping more oil, analysts note.
“If OPEC’s curent production is not spoiling the market then increasing the quotas to get closer to production is a reasonable thing to do,” Sieminski said.
The oil cartel’s next meeting is scheduled for June 3 in Beirut, but its ministers are to discuss prices at an informal meeting on the sidelines of an energy summit planned for May 22-24 in Amsterdam.
Meanwhile, it remains to be seen if what is being considered a cosmetic announcement is enough to durably calm oil markets.
“It might take things off the boil for now, but the problems that are pushing prices higher are still there,” Kaabi warned.