with agency reports
26 February 2016, Sweetcrude, Abuja – Earlier in the week when President Muhammadu Buhari jetted out to Saudi Arabia and Qatar to engage officials of both countries in further talks to ensure stability of oil prices, he was full of confidence that his mission to the Middle East oil powers would finally lead the way towards an “oil freeze” which would impact oil prices and bring some respite to the cash-strapped federal government.
In fact, Nigeria agreed to freeze its crude oil production at 2.2 million barrels per day this month, same as the level recorded in January, in a bid to address the declining price of crude oil in the international market. This was supposed to be a show of commitment to other members of the Organisation of Oil Exporting Countries, OPEC, that Nigeria was ready to do whatever was necessary to get oil prices on an upward trajectory.
However, it appears that President Buhari’s entreaties to the Arabians didn’t do the magic as Saudi Arabia has ruled out a deal by major producers to cut oil output and warned high-cost operators such as US shale drillers to trim costs or go bust in a stark message that triggered fresh pressure on crude prices.
Saudi oil minister Ali al-Naimi said yesterday a lack of trust between the world’s biggest producers meant a cut in production “is not going to happen”. He said the kingdom would instead push for a co-ordinated production freeze to help balance a market swamped with an excess of crude which has taken oil prices to their lowest level in more than a decade.
“There is less trust than normal,” Mr Naimi told energy executives in Houston. “Not many countries are going to deliver. Even if they say they will cut production, they will not deliver.”
The minister was speaking at an annual conference of US energy industry leaders and companies whose prolific exploitation of shale deposits helped topple oil prices, wreaking havoc on the economies of oil-rich countries.
In the absence of co-ordinated action, Mr Naimi said balancing supply and demand should be left to the market.
Mr. Naimi, 81, a veteran of booms and busts, denied Saudi Arabia was waging a war with US shale producers. But he said reducing volumes would only provide economic support for expensive oil, such as output from the US or the oil sands of Canada.
“The producers of these high-cost barrels must find a way to lower their costs, borrow cash or liquidate,” Mr Naimi said at the IHS CERAWeek conference.
“It sounds harsh, and unfortunately, it is, but it is a more efficient way to rebalance markets. Cutting low-cost production [such as Saudi Arabia’s] to subsidise high-cost supplies only delays an inevitable reckoning,” he added.
Meanwhile, the Nigerian government has tried to play down the Saudi rebuff stating that Nigeria and Saudi Arabia are committed to a stable oil market and efforts to support a price rebound, a spokesman for Nigeria’s president said on Tuesday.
Nigeria, Africa’s biggest oil producer, has been suffering from a slump in crude prices eroding vital oil revenues and hammering its currency.
“The two leaders accepted the fact that their two economies are tied to oil and that all cannot be well with both countries when the world oil market is unstable,” said Buhari’s spokesman Garba Shehu.
“They, therefore, committed themselves to doing all that is possible to stabilize the market and rebound the oil price,” he added.
Russia, Saudi Arabia, Qatar and Venezuela said last week, following talks in Doha, that they were ready to freeze production at January levels if other producers did the same.
Iran’s oil minister was quoted on Tuesday as saying the proposal was “laughable” because it did not allow that country to regain market share it lost during sanctions.
Following his visit to Riyadh, Buhari is set to fly to Doha to discuss oil price stability with Qatar’s ruler.
Mr Naimi’s remarks come a week after Saudi Arabia joined Russia, Qatar and Venezuela in a provisional output “freeze” if other large producers also agree.
The announcement, which was the first sign of co-operation between producers within and outside the OPEC cartel, raised hopes of a move toward action that would curb an oversupply of more than 1m b/d.
Mr Naimi called the freeze the “beginning of a process”, and said he sought to meet again with other big producers in March in hopes that they would join.
Senior Gulf officials have said in the past week an agreement to restrain production could be a prelude to further action in the form of production cuts, an idea Mr Naimi appeared to distance himself from.
Oil traders have been more sceptical, noting OPEC members Iran and Iraq have not joined the accord.
The producers of these high-cost barrels must find a way to lower their costs, borrow cash or liquidate
Bijan Zanganeh, Iran’s oil minister, said on Tuesday that the push for a freeze was “laughable”, according to a local news agency. Iranian officials have called on countries such as Saudi Arabia, which have ramped up production over the past year, to curb output.
The last time Mr Naimi spoke at the annual conference, in 2009, crude prices were plummeting amid a financial crisis. Then, OPEC slashed production by millions of barrels a day.
Today the cartel — led by Saudi Arabia — has been pumping freely in an effort to knock out higher-cost rivals. The kingdom’s production has surpassed 10m b/d for almost a year.
The minister said that after oil tumbled in 2014 he tried to bring together producers from inside and outside of OPEC to seek consensus. But there was “no appetite for sharing the burden,” he said.
Executives in Houston sounded resigned to a market where OPEC would no longer throttle back supplies.
Brian Ferguson, chief executive of Cenovus Energy, an oil sands producer in Canada, said earlier in the day: “By definition, we don’t have an oligopoly that’s balancing to solve for the price. Supply and demand will solve the price.”