I will prefer to say at the outset that Saudi Arabia has become subservient to the US administration and the notion that ‘Iran is a bigger threat.’ This has helped the US in soliciting arms orders worth US$350 billion.
Now, OPEC-led by Saudi Arabia, is being convinced to allow US Shale oil producers to increase their output under ‘mutual coexistence’. Both the Saudi decisions indicate that its foreign and economic policies have become subservient to the US.
The history of the relationship between OPEC and the US shale oil industry has evolved a great deal since the cartel discovered it (OPEC) has a monstrous rival eating up its market.
To convince Saudi Arabia to give more space, US bankers providing funds to Shale oil producers came to Vienna and key OPEC members are getting ready to visit Texas in a bid to understand whether the two industries can coexist or are poised to embark on another major fight in the near future.
The complete surrender by Saudi Arabia is evident from the statement of Khalid al-Falih, its Oil Minister, who said, “We have to coexist.”
One can recall that he pushed through OPEC production cuts in December, reversing Riyadh’s previous strategy of pumping as much oil as possible and try to push US Shale oil producers out of business, by keeping oil prices low.
OPEC has already decided to extend a helping hand to US Shale producers, but keeps seeking supplies at a level to hold prices below $60 per barrel.
Some analysts believe that now OPEC realizes supply cuts and higher prices only make it easier for the shale industry to earn a higher profit after it found ways of slashing costs.
Iran has already consented to support Saudi Arabia justifies its decision. “For all OPEC members $55 (per barrel) and a maximum of $60 is the goal at this stage,” said Bijan Zanganeh, Iran’s oil minister. “This price level is not high enough to encourage too much shale? It seems it is good for both.”
Some OPEC members seem keen to show they have shed any prior naivete about shale, making it a key topic during Thursday’s meeting after barely mentioning it before. Shale’s limitations, including rising service costs, also were discussed.
“We had a discussion on (shale) and how much that has an impact,” said Ecuador Oil Minister Carlos Pérez. He expressed helplessness, “But we have no control over what the US does and it’s up to them to decide to continue or not?”
“In terms of the threat, we still don’t know how much (U.S. shale) will be producing in the near future,” Nelson Martinez, Venezuela’s oil minister said after the talk.
OPEC meets again in November to reconsider output policy. While most in the group now appear to believe that shale has to be accommodated, there are still those in OPEC who think another fight is around the corner.
“If we get to a point where we feel frustrated by a deliberate action of shale producers to just sabotage the market, OPEC will sit down again and look at what process it is we need to do,” said Nigerian Oil Minister Emmanuel Kachikwu.