Page 6 - FSUOGM Week 02 2021

FSUOGM COMMENTARY FSUOGM

Saudi comes to OPEC’s rescue

The Kingdom has acted alone to prop up prices and while it is handing production

share to Russia, Saudi has shown the market who is boss

SAUDI ARABIA SAUDI Arabia surprised the oil market last week long been a proponent of cautious progression,
when Energy Minister Prince Abdulaziz bin Sal- favouring conservative rather than ambitious
WHAT: man announced that Riyadh would make a vol- moves. By making the move, it suggests that
Saudi Arabia untary additional production cut of 1mn barrels Saudi is seeking to avoid being manipulated by
unexpectedly announced per day (bpd) during February and March. The the market like it was in Q2 2020 as demand col-
it would cut production by news followed drawn-out talks between OPEC+ lapsed alongside prices.
1mn bpd during February partners to find a workable solution for next Meanwhile, as ever, the moving parts behind
and March, while Russia month’s production, which had previously been the scenes in Saudi leave room to wonder who is
and Kazakhstan are to be predicted to increase by a cumulative 500,000 in charge of decision-making. Having said that
allowed to make marginal bpd. the cut was a “political and sovereign decision”,
increases. Instead, only Russia and Kazakhstan will Abdulaziz said in an interview with Bloomberg
be allowed to raise output, by 65,000 bpd and that “this is not a decision of the government”,
WHY: 10,000 bpd respectively each month, giving instead suggesting that it had been taken by state
Riyadh is concerned total OPEC+ cuts of 8.125mn bpd for Feb- oil giant Saudi Aramco.
about the return of ruary and 8.05mn bpd for March, up from “Aramco … is supposed to sell their crude
demand growth and the reduction of 7.2mn bpd instructed for and remunerate the government for the sale of
appears to be acting January. their crude based on trying to maximise their
proactively, having been Speaking to press following the meeting, sales price. It’s purely commercial rather than
forced to respond to the Prince Abdulaziz said: “This gesture … will help political choice or directed by a political aspira-
market in Q1 and Q2 last and support friends and colleagues to continue tion or objective,” he said.
year. this unprecedented commitment of achieving While Aramco does indeed seek to achieve
100% compliance, and help those countries that the highest netback for its crude sales, which in
WHAT NEXT: are still [trailing] with their compensation to part is why exports to the US last week amounted
While the same fireworks compensate over January, February, March and to zero, the company’s production levels are
should not be expected at April.” strictly dictated by Abdulaziz’s Ministry of
the next OPEC+ meeting, Abdulaziz noted that the reduction would Energy as per the terms of its concession for all
all eyes will be on comprise both domestic and international sales, of the Kingdom’s hydrocarbon development.
compliance, with Saudi later clarifying that Saudi production for Feb- Middle East Oil & Gas (MEOG) understands
likely to take a more ruary and March would average 8.119mn bpd, that despite having reduced production lev-
stringent approach. below its 9.119mn bpd quota. The prince has els to around 7.5mn bpd in Q2 2020, Aramco

P6 www. NEWSBASE .com Week 02 13•January•2021