When Saudi Arabia lowered its oil prices last week, analysts declared that the No. 1 oil producer was more focused on maintaining its share of a well-supplied global market than on keeping prices at $100 a barrel or higher.
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“It is fair to say that the kingdom is not in a rush to cut production soon,” said London consulting firm Energy Aspects in a note Monday.
Bank of America Merrill Lynch went further in a note Tuesday, positing: “Does Saudi want $85 oil?”
But then the Saudis scrambled their signals, saying Wednesday that the country cut its crude-oil production by about 400,000 barrels a day in August.
“This confirms that … the Saudis will cut to defend their soft target of $100 for Brent,” says Michael Wittner, an analyst at Société Générale. The production report is a “much stronger signal and a much clearer signal” than the country’s official selling prices, or OSPs, he says.
Not so fast, others say. “The OSPs are the clearest signal,” says Citigroup analyst Eric Lee. The drop in Saudi production doesn’t mean that exports fell, he says, noting Saudi Arabia uses a lot of oil domestically for power generation.
Amrita Sen at Energy Aspects echoed the call to wait for export numbers to be reported. If Saudi Arabia really took 400,000 barrels a day off the global market, “that’s going to be a big number, yes,” she says. But “anecdotally, what we’ve heard is, that’s not happened.”
Last month’s Saudi reduced output isn’t enough to counteract tepid global oil demand and growing production from other OPEC countries. Libyan production has surged to about 800,000 barrels a day, from 200,000 barrels a day several months ago, and Iran and Nigeria also produced more oil in August than in the prior month, according to OPEC.
Bank of America proposed Tuesday that the Saudis could raise production with the intent of lowering oil prices and giving an economic boost to the U.S. and Europe in their fight against Islamic militants in the Middle East.
Saudi Arabia’s announcement of reduced production on Wednesday “doesn’t really change my view,” says Francisco Blanch, the bank’s head of global commodities and derivatives research. “I don’t think the story changes all that much until we start to see the physical markets balancing out a little bit better.”
So far, the futures market isn’t impressed by the Saudi news. Brent settled Wednesday at $98.04 a barrel, its lowest price since April 2013.
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(via WSJ Blogs)
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