The Oil Bust: OPEC Battles Price War Conspiracy Theories
For three weeks, OPEC’s richest and most influential countries were silent about the cartel’s decision on November 27 to maintain production levels at a relatively high rate despite the oil glut that has led to dangerously low prices.
Now these same OPEC members seem to be making a point of explaining the decision, making sure that any blame goes not to them but to outside producers who they say aren’t playing fair. Saudi Arabia in particular is protesting any idea that it alone was responsible for a decision that has already hurt poorer oil producers.
This explanatory campaign is being conducted by OPEC members from the Persian Gulf region, which are rich enough to withstand — at least for now — the current low prices, unlike less-affluent members such as Venezuela and Iran.
Last week their message focused on OPEC’s right to maintain its market share in the face of overproduction of oil by countries outside OPEC. The accusers were Saudi Arabia and the United Arab Emirates (UAE), and the defendants were countries such as the United States and Russia, although no country was mentioned by name.
“The share of OPEC, as well as Saudi Arabia, in the global market has not changed for several years … while the production of other non-OPEC [countries] is rising constantly,” Saudi Oil Minister Ali al-Naimi said.
UAE Oil Minister Mohamed Faraj al-Mazrouei agreed. “[The party] responsible for the price fall [by causing the current oil glut] should contribute to fix the imbalance in the market,” he said.
Next, on December 21, al-Naimi, al-Mazrouei, and Kuwaiti Oil Minister Ali Saleh Al-Omair attended an energy conference in Abu Dhabi of the Organization of Arab Petroleum Exporting Countries. They made the same point but added a plea to non-OPEC producers to cut back on production.
Al-Naimi said these countries “will realize that it is in their interests to cooperate to ensure high prices for everyone.”
The Saudi minister went further, expressing frustration at reports that somehow Saudi Arabia was deliberately keeping OPEC production high and therefore oil prices low to punish other countries. Again, he named no purported targets of such a strategy, but many observers have said they are, again, the United States and Russia.
“Talking about such alleged conspiracies … is absolutely incorrect and indicates a misunderstanding in some minds,” al-Naimi said. “Our economy is based on strictly economic strategies, no more, no less.”
Ultimately, both al-Naimi and al-Mazrouei told the conference that they believe oil prices will stabilize. Al-Mazrouei said OPEC’s decision to keep overall output at 30 million barrels a day was “correct,” even if this temporarily becomes a “major economic burden” on oil producers.
Another minister at the Abu Dhabi meeting, Iraqi Oil Minister Adel Abdel Mahdi, agreed up to a point, saying it will take time to determine whether OPEC made the right decision. Nevertheless, he said there was no need for the cartel to hold an emergency meeting before the session scheduled for June 5.
Originally written for OilPrice.com, a website that focuses on news and analysis on the topics of alternative energy, geopolitics, and oil and gas. OilPrice.com is written for an educated audience that includes investors, fund managers, resource bankers, traders, and energy market professionals around the world.