THIS IS A LONG ARTICLE BUT WELL WORTH READING... SAUDI PRINCE: 100-A-BARREL OIL NEVER AGAIN Saudi billionaire businessman Prince Alwaleed bin Talal told me we will not see $100-a-barrel oil again. The plunge in oil prices has been one of the biggest stories of the year. And while cheap gasoline is good for consumers, the negative impact of a 50% decline in oil has been wide and deep, especially for major oil producers such as Saudi Arabia and Russia. Even oil-producing Texas has felt a hit. The astute investor and prince of the Saudi royal family spoke to me exclusively last week as prices spiraled below $50 a barrel. He also predicted the move would dampen what has been one of the big U.S. growth stories: the shale revolution. In fact, in the last two weeks, several major rig operators said they had received early cancellation notices for rig contracts. Companies apparently would rather pay to cancel rig agreements than keep drilling at these prices. His royal highness, who has been critical of Saudi Arabias policies that have allowed prices to fall, called the theory of a plan to hurt Russian President Putin with cheap oil baloney and said the sharp sell-off has put the Saudis in bed with the Russians. The interview has been edited for clarity and length. Q: Can you explain Saudi Arabias strategy in terms of not cutting oil production? A: Saudi Arabia and all of the countries were caught off guard. No one anticipated it was going to happen. Anyone who says they anticipated this 50% drop (in price) is not saying the truth. Because the minister of oil in Saudi Arabia just in July publicly said $100 is a good price for consumers and producers. And less than six months later, the price of oil collapses 50%. Having said that, the decision to not reduce production was prudent, smart and shrewd. Because had Saudi Arabia cut its production by 1 or 2 million barrels, that 1 or 2 million would have been produced by others. Which means Saudi Arabia would have had two negatives, less oil produced, and lower prices. So, at least you got slammed and slapped on the face from one angle, which is the reduction of the price of oil, but not the reduction of production. Q: So this is about not losing market share? A: Yes. Although I am in full disagreement with the Saudi government, and the minister of oil, and the minister of finance on most aspects, on this particular incident I agree with the Saudi government of keeping production where it is. Q: What is moving prices? Is this a supply or a demand story? Some say theres too much oil in the world, and that is pressuring prices. But others say the global economy is slow, so its weak demand. A: It is both. We have an oversupply. Iraq right now is producing very much. Even in Libya, where they have civil war, they are still producing. The U.S. is now producing shale oil and gas. So, theres oversupply in the market. But also demand is weak. We all know Japan is hovering around 0% growth. China said that theyll grow 6% or 7%. Indias growth has been cut in half. Germany acknowledged just two months ago they will cut the growth potential from 2% to 1%. Theres less demand, and theres oversupply. And both are recipes for a crash in oil. And thats what happened. Its a no-brainer. Q: Will prices continue to fall? A: If supply stays where it is, and demand remains weak, you better believe it is gonna go down more. But if some supply is taken off the market, and theres some growth in demand, prices may go up. But Im sure were never going to see $100 anymore. I said a year ago, the price of oil above $100 is artificial. Its not correct. Q: Wow. And you said you are in agreement with the Saudi government to not give up market share? A: This is the only point Im agreeing with the Saudi Arabian government on oil. Thats the only point, yes. Q: Should the Saudis cut production if they get an agreement with other oil producing countries to take oil off the market? A: Frankly speaking, to get all OPEC countries to approve and accept it, including Russia and Iran, and everybody else, is almost impossible You can never have an agreement whereby everybody cuts production. We cant trust all OPEC countries. And cant trust the non-OPEC countries. So its not on the table because the others will cheat. The past has proven that. When Saudi Arabia cut production in the 80s and 90s, everybody cheated and took market share from us. Plus, remember there is an agenda here also. Although Saudi Arabia and OPEC countries did not engineer the reduction in the price of oil, theres a positive side effect, whereby at a certain price, we will see how many shale oil production companies run out of business. So although we are caught off guard by this, we are capitalizing on this matter whereby well live with $50 temporarily, to see how much new supply there will be, because this will render many new projects economically unfeasible. Please continue reading....
Posted on: Sun, 11 Jan 2015 23:45:40 +0000
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