Al Naimi on Saudi Oil Capacity: ‘Who Are You Going to Believe – Me Or What Media and Analysts Say?’
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Saudi Arabia’s oil minister Ali Naimi has set a new target of $100 for Saudi Arabia to break even on its governmental budget, a large increase from previous forecasts, according to reports.
The increase is $25 dollars a barrel more than previously established by the Kingdom of Saudi Arabia in 2008.
While some analysts are quick to note that the new Saudi “target” for oil is to accommodate for large increases in spending by the Kingdom’s government, John Kemp in Reuters has a different take:
Source: Jadwa Investments
“Oil analysts have seized on the revision as confirming their view leading OPEC members need higher prices to cover the cost of increased social spending following the Arab Spring, putting an effective “floor” under the market at around $100, and ensuring crude prices remain on a medium-term upward trend.
“But that is not what Naimi said and does not accord with previous Saudi decision-making. Traders and investors would be unwise to place too much emphasis on the $100 figure. It certainly will not guide the kingdom’s output policy.”
Kemp’s position is in line with that of National Commercial Bank of Saudi Arabia, whose economic forecasts predict a “breakeven” price of oil for the Government at $71, well below the $100 figure.
Meanwhile, the Minister of Petroleum and Natural Resources Ali Al Naimi said in a statement to Asharq Alawsat that the Kingdom dismisses doubts that it can increase capacity. While not directly mentioning Iran, Al Naimi’s comments infer that, if an embargo is implemented against Iranian oil, Saudi could and would increase production to 12.5 million barrels per day.
Al Naimi in Asharq Alawsat:
“Saudi does have the capacity to produce 12.5 million barrels per day…if needed,” he said. “People can doubt our capacity to meet customers’ needs, but who are you going to believe – me or what media and analysts say?” Al-Naimi asked.
Even though global demand for oil is falling for the first time since the Global Economic Crisis, according to the IEA, oil’s price continues upward in large part because of uncertainty over increased hostilities between Iran and the West over its nuclear program. Iran has threatened to cut off the Strait of Hormuz, a key passageway for oil and other goods, which the United States considers a “red line.”
