Saudi Arabia can sustain for many years despite drop in oil prices

Abu Dhabi: Saudi Arabia is seeking to push Russia into cutting oil production while increasing its own output to match the decline, said Dr Jean Francois Seznec, an adjunct professor at McDonough School of Business in Georgetown University in the US.

Seznec, who was speaking at an oil symposium in Abu Dhabi, said Saudi Arabia is doing this by pushing prices down and maintaining its own market share. “It can maintain pressure on markets for many years but Russians on the other hand can go on for one or two years with the present price. Russians will have to cut production. The present decline in oil prices is not due to Opec [Organisaiton of the Petroleum Exporting Countries] but due to non-Opec countries.”

“Saudi Arabia knows that it cannot force US suppliers to cut, but can push for a limit on investments by oil companies. With technology improvements, shale oil costs are down to $35 per barrel.”

He said Saudi Arabia is trying to stabilise the market by targeting a price of $80 per barrel. “It will remain the world’s most reliable supplier. The country is trying to develop the industrial sector with an ultimate aim to decrease dependence on oil revenues.”

Talking about Saudi’s minister of petroleum and minerals, Ali Al Naimi, he said Al Naimi is a superb strategist and is highly respected inside and outside the kingdom. “He is technically masterful and has been the minister for more than 25 years.”

The total cash available to the Saudi treasury is $1 trillion (Dh3.67 trillion), with Saudi cash reserves amounting to $730 billion. It can also draw on cash in banks by issuing development bonds.

The Organisation of the Petroleum Exporting Countries (Opec), spearheaded by Saudi Arabia, decided to keep the output at the same level despite pressure from its member countries at a meeting in Vienna last November.

Saudi Arabia holds 16 per cent of the world’s proved oil reserves, is the largest exporter of total petroleum liquids in the world, and maintains the world’s largest crude oil production capacity, according to US Energy Information Administration (EIA).