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Saudi Arabia's insistence on 'no production cuts'
Among the OPEC member countries, Saudi Arabia is the most resolute in its stance against production cuts. On the one hand, Saudi Arabia hopes to maintain its existing market share; on the other hand, Saudi Arabia has the "confidence" to not cut production due to its cost and reserve advantages.
Publish time：
2020-10-16
Among the OPEC member countries, Saudi Arabia is the most resolute in its refusal to cut production. On the one hand, Saudi Arabia hopes to maintain its existing market share; on the other hand, Saudi Arabia has the "confidence" to not cut production due to its cost and reserve advantages.
On January 23, King Abdullah of Saudi Arabia passed away, and his brother Salman succeeded him as the new king. The news of the succession focused many people's attention on the royal family—the center of power and wealth in this oil-rich nation. At the same time, the statement repeatedly made by Saudi Arabia that it "will not reduce oil production to raise oil prices" has once again attracted global attention.
Since June 2014, international crude oil prices have been halved. Faced with an oversupply in the crude oil market, many experts have analyzed that unless large-scale production cuts are implemented, or a temporary geopolitical conflict erupts, international oil prices are unlikely to rise in the short term.
However, as low oil prices become the new normal, OPEC member countries have not reduced production to coordinate oil prices. Among them, Saudi Arabia, as the world's largest crude oil exporter and the largest OPEC producer, has "taken the lead" in expressing its "willful" attitude of abandoning production cuts, with declarations such as "we can successfully cope with low oil prices for at least eight years" and "we will use our will, wisdom, and experience to overcome the turbulent period of oil price plunges" constantly appearing in various media reports.
Why is OPEC, represented by Saudi Arabia, so "willful" in refusing to reduce crude oil production? According to some US media interpretations, a key purpose of OPEC's "indifference" to falling oil prices is to maximize its grab of market share in the international energy market, thereby hitting its competitor, the United States, until it squeezes out high-cost producers and makes shale oil and other new energy producers unprofitable.
From Saudi Arabia's perspective, on the one hand, its oil extraction costs are relatively low, it has less debt, and its foreign exchange reserves are relatively abundant, so it can still make profits even if it watches international crude oil prices "free fall." On the other hand, the country is currently cutting government spending. As its former senior petroleum minister advisor, Mohammed Sabah, said: "If government spending is not cut, the country can only cope with low oil prices for at most four years." At the same time, for Saudi Arabia, whose national economy heavily relies on oil exports, the decline in oil revenue will inevitably affect energy investment in other areas, thus restricting the country's energy diversification. When oil prices hit rock bottom one day, risks are inevitable. In addition, other OPEC member countries may not have the financial resources to "endure" low oil prices.
In fact, affected by the overall weak demand for crude oil and intensified competition in the refined fuel market, some Saudi Arabian refineries have been operating at lower capacity utilization rates. Compared with their counterparts on the US Gulf Coast, these refiners not only lack a profit advantage but also operate more difficultly overall. Furthermore, even if the strategy of temporarily sacrificing oil prices to gain market share can temporarily endanger US shale oil producers, it may not be truly effective in the long-term international energy game.
Currently, the situation in the Middle East is turbulent and still under the threat of terrorism. For Saudi Arabia, with its foreign exchange reserves gradually dwindling and domestic unemployment continuing to increase, its continued "willful" refusal to cut crude oil production is questionable. Perhaps this is also a long-term challenge that the new King Salman will face.
Keywords：
Petroleum,Crude oil
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