Wed, Jun 03, 2015 - Page 15 News List

Saudi Arabian minister says oil strategy working

Reuters, VIENNA

Saudi Arabian Minister of Petroleum and Mineral Resources Ali al-Naimi on Monday said he expects oil demand to pick up in the second half of this year while supply decreases, in a sign that the kingdom’s strategy of defending market share is working.

The comment indicates Saudi Arabia is likely to propose not to change output policy at producer group OPEC’s meeting on Friday, although Naimi declined to speak directly on the issue.

“The answer is yes,” al-Naimi said in his first public comment upon arrival in Vienna, where the meeting is scheduled to take place, when asked whether the strategy of defending market share through higher supplies and lower oil prices was working.

“Demand is picking up. Good. Supply is slowing, right? That is a fact,” he told reporters. “You can see that I’m not stressed, I’m happy.”

Naimi was the key architect of OPEC’s decision at its last meeting in November last year not to cut crude production despite a growing global glut, exacerbated by a boom in US shale oil.

Instead, OPEC kingpin Saudi Arabia raised production to win back market share and depress the output of higher-cost producers through lower oil prices, which fell from as much as US$115 in June last year to as low as US$46 in January.

However, prices have recovered in recent weeks to between US$60 and US$65 per barrel on the possibility of a major slowdown in US oil output and signs of stronger global demand.

Al-Naimi said it would take time for the oil markets — still heavily oversupplied — to rebalance.

“I don’t have a crystal ball, but it is [going] in the right direction,” he said.

He added that he was not concerned by prospects of an increase in Iraqi or Iranian supplies later in the year.

He said he doubted that millions of barrels of oil stored in recent months by traders and oil companies would be offered anew in the market, thus leading to a fresh drop in prices.

He said one reason why that would not happen was the narrowing contango — a market structure in which future prices are higher than current prices, encouraging the storage of oil for resale at a profit in the future. The opposite structure, backwardation, has current prices higher than future prices.

“This is not a good time to sell the surplus. So they [traders] have to keep it, and as the contango goes down and they see the backwardation coming forward they will hang on to it. They are not going to dump it on the market,” al-Naimi said.

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