IHS CERAWeek: By dismissing OPEC cut, did Saudi Minister Naimi outline the path to one?

Saudi Oil Minister Ali Al-Naimi this week told a massive Houston crowd that the oil-rich kingdom wasn't interested in solving the global market's problems, telling them he saw no point in a coordinated production cut.

While he said no cut, is that what he really meant?

Maybe not.

Many attendees at the IHS CERAWeek conference pointed out that while Naimi said he sees a coordinated cut as an entirely useless endeavor, he didn’t rule it out.

“Perhaps he meant no cut … for now,” said Mohammed bin Hamad Al Rumhi, the oil minister of Oman, a non-OPEC country which has pledged to cut production by as much as 10%, or roughly 100,000 b/d, as long as OPEC members commit to the same in order to rebalance the market.

Echoing the sentiments of several others at CERAWeek, Rumhi said Naimi’s comments leave open the possibility of a production cut at June’s OPEC meeting.

Blog post continues below...

Request a free trial of: Oilgram News
	Oilgram News brings fast-breaking global petroleum and gas news to your desktop every day. Our extensive global network of correspondents report on supply and demand trends, corporate news, government actions, exploration, technology, and much more.
	(opens in a new tab)

“If circumstances change, this will change,” Jamie Webster, a senior director with IHS Energy, told Platts. “It’s not like this is done and there’s no more discussion.”

In his comments, Naimi dismissed the use of a production cut since there was “less trust” that member countries would comply.

“There is no sense in wasting our time seeking production cuts,” he said.

Webster said this was a reference to compliance issues with a 2008 OPEC production cut. As he seemingly dismissed the purpose of a cut, Naimi backed an agreement to freeze production at January levels, which he called "the beginning of a process."

Naimi’s comments echo those made Monday by OPEC Secretary General Abdalla Salem El-Badri who called a proposal to freeze production a first step to attempt to counter a global supply glut and low prices and said more steps were likely if the freeze was successful.

“This is a first step to see what we can achieve,” El-Badri said during a CERAWeek press conference. “Maybe if this is successful we can take other steps in the future, I don’t know.”

Analysts said the most likely next step after a coordinated freeze would be a coordinated cut.

Dave Pursell, managing director with Tudor, Pickering, Holt & Co., told Platts that Naimi may have been subtly, but publicly, offering OPEC members a deal: join the agreement to freeze production and Saudi Arabia can talk about a coordinated cut at the June meeting to counter $30/b oil.

"You've got to quit adding before you can start subtracting," Pursell said. "So part of that is [Naimi saying]: 'You show me you're not adding, then we can talk about subtracting.'"

Matt Reed, vice president of Foreign Reports, a firm analyzing oil markets and Mideast politics, said Naimi's comments show that Saudi Arabia is still willing to cut, they just do not want to pursue that path alone.

"Naimi said a cut won't happen but he was speaking generally, not specifically about Saudi Arabia," Reed said in an email. "He has good reason to be skeptical about any cuts when the Iranians are promising to make today's glut worse."

Iran, which is looking to ramp up production with the end of sanctions, has criticized the pact reached by Russia and Saudi Arabia, the world's top two oil exporters, and OPEC members Venezuela and Qatar to freeze production at January levels if other key producers did the same.

Reed said the freeze agreement represents an important first step since it shows that the world's top producers are, at a minimum, focused on solutions to the oil price collapse and global supply glut.