The oil-producing nations of OPEC convene in Vienna on Friday, exactly one year since Saudi Arabia took the lead on its strategy to ramp up output to drive out higher-cost producers and secure market share. The results have been a global oil market in a state of persistent oversupply and unexpected resilience from smaller producers.
Saudi Arabia, OPEC’s biggest producer, “caused one of the biggest upheavals in the oil markets” at last year’s meeting by blocking a cut in output in pursuit of greater market share. However, the price of crude has yet to rebound as expected, and smaller producers are proving resilient in the face of lower prices, although the shale boom in the United States has been subdued by OPEC’s actions.
Whether Saudi Arabia and the OPEC nations will continue with the strategy is creating early discord among OPEC members. According to MarketWatch, members including Iran have decided the effort was a failure and are preparing to press Saudi Arabia directly to pull back on production at the group’s meeting this week.
Low oil prices and high spending are putting pressure on Saudi fiscal policy.
While Saudi Arabia has the financial resources to withstand low prices for an extended period of time, it is nevertheless costly for the Kingdom to weather the storm. Saudi Arabia’s economic growth is dependent on oil, despite longstanding efforts at diversification. Continued low prices have impacted Saudi fiscal policy and Saudi Arabia’s Deputy Crown Prince and chair of the Kingdom’s powerful economic council Mohammed Bin Salman told the New York Times that Saudi Arabia’s key challenges “are our overdependence on oil and the way we prepare and spend our budgets.”
Still, indications from Saudi leaders do not point to a new oil strategy yet. At a cabinet meeting last week, members stressed “the Kingdom’s role in the stability of the oil market, its constant readiness and continuing pursuit to cooperate with all oil producing and exporting countries.”
Ali Al Naimi, Minister of Petroleum of Natural Resources, said last week at a meeting in Bahrain: “Perhaps it would be fitting here to mention the role of the Kingdom of Saudi Arabia in the stability of the oil market, and its continued willingness and prompt, assiduous efforts to cooperate with all oil producing and exporting countries, both from within and outside OPEC, in order to maintain market and price stability.”
The OPEC meeting will be live-streamed on OPEC’s website.
