Saudi Arabia is quietly telling the oil market it would be comfortable with much lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the US shale patch, Reuters said.
Some OPEC members including Venezuela are clamoring for production cuts to push oil prices back up above $100 a barrel.
But Saudi officials have given a different message in meetings with investors and analysts: the kingdom, OPEC’s largest producer, will accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations.
The discussions, some in New York over the past week, offer the clearest sign yet that the kingdom is setting aside its longstanding de facto aim of holding prices at around $100 a barrel for Brent crude in favor of retaining market share in years to come.
The Saudis appear to be betting lower prices – which could strain the finances of some members of the Organization of the Petroleum Exporting Countries – will be necessary to pave the way for higher revenue in the medium term, by curbing new investment and further increases in supply from places like the US shale patch or ultra-deepwater, according to the sources, who declined to be identified due to the private nature of the discussions.
The conversations with Saudi officials did not offer any specific guidance on whether - or by how much - the kingdom might agree to cut output, a move many analysts are expecting in order to shore up a global market that is producing substantially more crude than it can consume. Saudi Arabia pumps around a third of OPEC’s oil, or about 9.7 million barrels a day.
Also uncertain is whether the Saudi briefings to oil market observers represent a new tack it is committed to, or a talking point meant to cajole other OPEC members to join Riyadh in eventually tightening the taps on supply.
One source not directly involved in the discussions said the kingdom does not necessarily want prices to slide further, but is unwilling to shoulder production cuts unilaterally and is prepared to tolerate lower prices until others in OPEC commit to action.
