Abu Dhabi: Gulf countries are likely to feel the heat of revenue loss if oil production is not slashed at the crucial Organisation of the Petroleum Exporting Countries (Opec) meet in Vienna on Friday, analysts predicted.
Ali Al Naimi, the oil minister of Saudi Arabia, indicated that he is in no mood to cut oil production in a bid to reduce supply and support prices, reported by Reuters on Tuesday.
“Demand is picking up. Good! Supply is slowing, right? That is a fact,” he said ahead of the group’s key meeting in Vienna.
Oil prices plunged by more than 50 per cent since June last year. From $115 (Dh422) per barrel oil prices fell to less than $50 in January before recovering later as demand picked up and shale rig count went down in the US.
Opec countries produce more than 30 million barrels per day (mbd) with Saudi Arabia being the largest contributor — its oil output is more than 10 mbd. The UAE produces about 2.8 million barrels per day.
“If Opec decides not to cut its production by at least two million barrels a day on Friday, then everyone will suffer including Arab Gulf oil producers, Russia and US shale oil producers,” said Dr Mamdouh G Salameh, an international oil economist and consultant to Word Bank on energy.
“Arab Gulf oil producers would be the most badly affected. In February alone, Saudi foreign exchange reserves fell by $20.20 billion, the biggest monthly drop in at least 15 years according to data from the Saudi Arabian Monetary Agency.”
He said Algeria, one of the world’s top natural gas exporters, saw its funds fall by $11.6 billion in January, the largest monthly drop in a quarter of century.
“At that rate, it will empty the reserves in 15 months. Moreover, Opec members are expected to earn $380 billion selling their oil this year according to US estimates. That represents a $350 billion drop from 2014, the largest one-year decline in history.” According to him, Russia has managed to somewhat mitigate the impact of low oil prices and the sanctions by currency swaps with China and also by selling almost $1 trillion worth of oil and gas to China.
Edward Bell, a commodity analyst at Emirates NBD, said there won’t be a permanent decline in the US shale output if Opec decides to keep the oil production unchanged.
“US shale producers are already gearing to restart production, so we wouldn’t expect a significant change in their planning unless prices started to fall uncontrollably, which is not our central view.”
“ We have already started to see some slowdown in US shale output as the lower rig count finally starts to have an impact. However, this isn’t going to be a permanent decline.”
He said Opec producers will focus on long-term market share and demand for oil, not short-term price relief when they meet in Vienna on Friday.
“High oil prices, while helpful to regional treasuries, also help incentivise high cost oil from outside the Gulf such as shale in the US, oil sands in Canada and deep water in Brazil as well as non-oil energy sources. So a slow and grinding rise in prices may be more sustainable in the end to keep revenues flowing into the Gulf region.”
In the last meet in November, the powerful cartel decided to keep the output levels unchanged adding pressure to the downward slide of oil prices.