Ali bin Ibrahim al-Naimi announced on Tuesday that there is no possibility that oil production cuts (recently announced by several countries) will lead to a reversal of the oil prices. His comments, made at the annual IHS Ceraweek conference, actually put further pressure on oil prices. His comments are founded on some recent patterns and events. Saudi Arabia, Russia, Qatar, and Iraq have raised production to compete for Asian markets. This increase in production has lead to record levels of inventories. The problem in production freezes resides in the fact that a country will not reduce production unless other countries follow suit; this is the stance Saudi Arabia has taken. The solution is thought to rest in the ability to get all the major oil producing countries to agree to decrease production. Hopefully, the inventory would begin to decline. Other experts see the solution as waiting for the inventory to flatten. For example, Russian production is already beginning to decline due to a lack in investment.
Clifford Krauss, NY Times 2/24/16
This is an interesting article and and interesting way of thinking of business. With oil being needed all over the world, it is interesting to me that it would take several countries decreasing their production in light of excess inventory in order for other countries to follow suit. While it makes sense from a competitive standpoint because they do not want to decrease their production and lose business, however if all of the country's oil businesses have product sitting idle it would only make sense to cut production. It will be interesting to see how the oil market fares in the upcoming months and the kinds of changes that will have to occur in this business to remain profitable.
ReplyDeleteI agree with Ashley, it seems rather strange that Saudi Arabia would take such a stance because to expect countries to decrease their amounts would hurt investment and lower a everyday necessity for thousands which seems like a move to hurt other economies and inflate Saudi Arabia's economy. It'll be interesting to see what the response to this will be.
ReplyDeleteIf all of the major oil exporting countries do not decrease production, oil prices will continue to fall. I understand that Saudi Arabia does not want to lose any competitive advantage. However, if they don't agree to cut down production, all of the other countries will also not agree, and oil prices will continue to fall. I would bet that within the next few months Saudi Arabia will change their stance.
ReplyDeleteI agree with Sam regarding this article. With this continued downward pressure on oil prices it will be interesting to see how it will continue to effect other markets. I believe they will probably change their stance as well, as this won't be sustainable in the long term with this type of inventories. As much as consumers may be benefitting from these gas prices, I think there will be more beneficial effects for the economy as a whole once the oil market sees some sustainable consistency in its supply once again.
ReplyDeleteU.S. oil production will keep declining, the longer Saudi Arabia holds out. Several companies have already gone bankrupt, and more are under the same trend. That will allow Saudi Arabia to achieve its goal of holding onto market share, and letting prices adjust on the back of rival producers
ReplyDeleteU.S. oil production will keep declining, the longer Saudi Arabia holds out. Several companies have already gone bankrupt, and more are under the same trend. That will allow Saudi Arabia to achieve its goal of holding onto market share, and letting prices adjust on the back of rival producers
ReplyDeleteAli bin Ibrahim al-Naim the minister for petroleum for Saudi Arabia has taken a strict stance against cutting the production for petroleum and understandably so. There is no use of one country cutting production with the exception of others doing the same but rather they increase production to compete for the asian markets. This will help have no increase in price but will keep having a downward pressure on price due to an increase in world oil supply as can be seen by the record inventories held. If Saudi freezes oil production in order for a price hike this will not happen unless other countries activly participate in this mandate. If only Saudi reduces oil supply levels then they'll be the biggest losers out of all oil producing countries.
ReplyDeleteAli bin Ibrahim al-Naim the minister for petroleum for Saudi Arabia has taken a strict stance against cutting the production for petroleum and understandably so. There is no use of one country cutting production with the exception of others doing the same but rather they increase production to compete for the asian markets. This will help have no increase in price but will keep having a downward pressure on price due to an increase in world oil supply as can be seen by the record inventories held. If Saudi freezes oil production in order for a price hike this will not happen unless other countries activly participate in this mandate. If only Saudi reduces oil supply levels then they'll be the biggest losers out of all oil producing countries.
ReplyDelete