Ali al-Naimi, Saudi Arabia’s oil minister, has announced that the Organization of Petroleum Exporting Countries (OPEC) will not cut production even if the price falls to $20 a barrel.
Referring to countries outside the OPEC Al-Naimi said, “If they want to cut production they are welcome. We are not going to cut, certainly Saudi Arabia is not going to cut.”
His comments reinforce OPEC’s recent policy change away from restricting output as prices fall. In November, OPEC said it would keep its target output at 30 million barrels per day, despite the fact that the stance might hurt Russia, Venezuela and particularly Nigeria. Nigeria’s fiscal position has been made even more precarious by ambitious 2015 oil budget benchmark of $65 a barrel proposed by Ngozi Okonjo-Iweala, minister of finance and coordinating minister for the economy, in the face of sluggish global demand for crude oil and excess capacity being pumped by the United States which is now shale oil producer.
Speaking to the Middle East Economic Survey, al-Naimi said, “As a policy for OPEC – and I convinced OPEC of this, even Mr. al-Badri [OPEC secretary general] is now convinced – it is not in the interest of OPEC producers to cut their production, whatever the price is. Whether it goes down to $20, $40, $50, $60, it is irrelevant,” he said.
The world might not see the oil price back at $100 a barrel again, he added.
While alternative sources of crude oil, such as shale and tar sands, have caused a big increase in supply, some analysts argue that the oil price collapse is more to do with falling demand due to a slowing global economy.
An analyst said that the oil price fall was “overwhelmingly, predominantly, if not entirely, a demand shock. It’s China slowing down. The supply element is more of a reaction.”
International Monetary Fund (IMF) economists have speculated that the low oil price could boost the global economy by up to 0.7 per cent in 2015.
“Overall, we see this as a shot in the arm for the global economy,” said Olivier Blanchard, the IMF’s chief economist.
Similarly, OPEC producers believe the oil price could return to about $70 or $80 by the end of 2015 as global economic recovery boosts demand.
The price of Brent crude oil has fallen by more than 46 per cent since hitting its $116 peak in June 2014.

Folashade Olubayo
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