Saudi Arabia pledges to ensure oil market stability

Dhahran, Saudi Arabia — Saudi energy minister Prince Abdulaziz bin Salman pledged Monday to help ensure the stability of the global oil market amid rising tensions in the Middle East following the US killing of a top Iranian commander in Baghdad.

"As tensions remain high in our region, the kingdom will do all it can to ensure a stable oil market," the minister told the International Petroleum Technology Conference in the Saudi city of Dhahran.

The strike that killed Qassem Soleimani helped to push oil prices up to $70/b for the first time since September, as Iran retaliated for the killing with attacks on US forces stationed in Iraq. Despite fears that Iran could attack oil tankers in the Gulf of Hormuz, no oil flows were affected by the retaliation and Brent has since retreated, falling back under $65/b on Monday.

"The president of the United States is the president of the United States, he can do whatever he wishes, and he is certainly not accountable to me," the prince said in reply to a question on the US killing of Soleimani. "However, the US is a strategic partner. It has a big role in security."

Saudi Arabia, the world's biggest oil exporter, is in the midst of an OPEC+ agreement to cut 1.7 million b/d of crude from the market in January through to March.

Saudi Arabia's new quota is 10.145 million b/d, but the kingdom plans to produce at a maximum of 9.744 million b/d with its voluntary cut of 400,000 b/d announced at the OPEC+ meeting in December. That brings the total OPEC+ cuts to 2.1 million b/d. The prince said Saudi Arabia's production would stay at 9.744 million b/d in January and February.

"Generally we don't like volatility," the minister said. "Predictability comes with a price tag. That price tag comes with the creation of institutions such as OPEC and OPEC+."

Saudis cutting

Saudi Arabia, OPEC's largest producer, trimmed its production in December to 9.82 million b/d, according to the latest S&P Global Platts OPEC survey, after surging it in November to replenish stocks depleted in the wake of the September 14 attacks on the Abqaiq processing facility and Khurais oil field.

"We're leaving it until we meet in March," said Prince Abdulaziz when asked about the OPEC+ agreement which will be discussed at a meeting in Vienna in March. "We have made an agreement subject to review. We have to see how the situation then will be, what level inventories are. We are focused on inventories."

Saudi Aramco CEO Amin Nasser said attacks on the company's facilities in the past year, including on the Abqaiq crude processing facility, the East-West Pipeline and the Shaybah gas plant, have demonstrated its resilience under fire.

"Our ability to restore our facilities is unmatched in the industry," he said at the conference, adding that Aramco has achieved a 99.7% reliability rate in delivering cargoes to its customers. "We have a track record of being a very reliable supplier to our customers."

Armed drones in May struck the 1,200-km East-West pipeline linking the oil-rich eastern region to the Red Sea port city of Yanbu, temporarily shutting in the facility, which can pump as much as 5 million b/d. The Shaybah NGL plants in August were also struck by drones, causing fire but no loss to output.

But the September 14 attack temporarily knocked down some 5% of the world's global crude supply. Production and capacity were back to pre-attack levels by November, Saudi officials said at the time.

2020 outlook

Nasser said he is bullish on 2020 oil prices, though he demurred on providing a forecast. Demand growth should be decent, in the range of 1.2 million to 1.4 million b/d, based on estimates by the International Energy Agency and the US Energy Information Administration, he said at the conference. The International Maritime Organization's new sulfur regulations on marine fuels that kicked in this year should also boost demand, he said.

At the same time, growth US shale production is likely to slow this year, he said.

"The situation is improving, with the demand that we are seeing [and] with the slowdown that is expected in shale oil compared to previous years," Nasser said. "I think we are bullish about the future."

Bahrain's oil minister, Mohammed Bin Khalifa, said any substantial increase in US shale oil output may dampen prices this year.

"Going forward, all eyes are on US production," he said. "If there is going to be another 1 million b/d, yes that will have a negative impact on prices."