This page has been archived and commenting is disabled.
What Saudi Arabia Told The Bank Of England About Why Oil Crashed And Where It Is Headed Next
Prepared remarks as delivered Dr Ibrahim Al-Muhanna, Advisor to the Minister of Petroleum and Mineral Resources for Saudi Arabia, at the March 15 Institute of International Finance Spring Membership Meeting.
The Global Energy Outlook
Ladies and gentlemen.
It is good to be back with you in Doha. Thank you for inviting me to speak about the international oil market. As you all know, the oil market keeps changing, the price fluctuates and supply and demand are constantly shifting. Most of the time, the change in the oil price is small, other times it is large. During the past 40 years, the oil price has sharply risen or fallen at least 12 times, half of which was due to reasons such as politics, war, natural disasters or sanctions. The other half were due to market forces, which includes oil producer policy, such as production cuts or increases, strong economic growth or slowdown, or due to various financial crises.
In June 2014, just nine months ago, the oil price stood at around $115 a barrel. It then fell to just over $45 last January. Nobody anticipated this price fall, or the speed at which it fell. And despite an army of experts and analysts who would like you to think otherwise, no one can accurately predict what the future holds. We all have expectations – but the chance of being wrong is the same as being proved correct. One thing is certain: rapid price movements are not healthy for producers or consumers, or the oil industry, or indeed the banks.
Ladies and gentlemen. A few weeks ago, in Riyadh, I was at a small, private function along with the British central bank governor, Mark Carney. Mr Carney asked me two questions. First, why did the oil price drop? And the second, where is the price heading?
I will tell you today what I said to him then.
I do not believe the fundamentals of supply and demand justified the sudden and rapid price fall during the second half of last year. The market was balanced, and commercial stocks were within their normal range. Yes, supply was starting to increase, but demand remained strong and there was not a very sudden rise in commercial stocks.
I believe the price fall can be put down to expectation and speculation. It was not about fundamentals. It reminded us of 2008, when all the speculation was that we were running out of oil resources and limited production capacity. The recent price fall was due largely to expectation and perception about future supply and demand. Also similar is the wrong assumptions of changing Saudi oil policy, and the ever-present – and incorrect – belief in conspiracy theories.
So let me set out some of the events that had an impact. By late-June, 2014, some forecasts talked of over-supply by the end of the year, and into 2015. The price started to go down slowly to $100, and then to $90 during the following month. In October 2014, a senior OPEC official was asked, at a private dinner in New York, if he thought prices would drop to $80. He said anything is possible but, if it happened, many oil producing countries could handle it. During the same week, in London, another official was asked the same question and he gave a similar answer. Then rumors began to circulate that Saudi Arabia, and perhaps some OPEC producers, wanted lower prices. People started to speculate as to why this may be. And strange and wrong assumptions started to go around. Many analysts started to focus on political reasons, instead of economic ones, such as planning to harm other nations for political goals.
In the same month, there was another incorrect assumption. Saudi Aramco changed its price formula for Asia. A leading US newspaper report specifically used the phrase “price war”, saying Gulf producers were at war on prices. These Aramco prices, by the way, rise and fall, month by month, and are driven purely by business imperatives. Saudi Aramco has never been in a price war with anyone. Then an article by Thomas Friedman suggested Saudi Arabia’s policy – in coordination with the Obama administration - was aimed at hurting Russia by lowering the oil price. This idea was a rehash of assumptions that first reasoned the oil fall of the 1980s. All complete fantasy.
As often happens, many commentators confused cause and effect. Are lower prices bad news for Russia? Yes. Is it bad for Saudi Arabia? Yes. Is it bad for the industry? Yes. Does Saudi Arabia set the oil price? No.
Did it cause the lower price for political or economic goals? No. Claims to the contrary are untrue, full stop. Yet rumors and conspiracy theories grew bigger and bigger, and the oil price was going down. We tried to stress the facts on the grounds but it wasn’t easy to convince people. A herd mentality took over.
In early November, Minister Naimi visited Venezuela for a climate meeting, and also met with the Venezuelan foreign minister, Mr Ramirez. He was keen for concerted action in terms of production and was soon on a globe-trotting mission to attempts to convince other OPEC and non-OPEC producers that this was the way forward. He had our support.
On November 25, 2014, one day ahead of the OPEC meeting in Vienna, Saudi Arabia, Venezuela, Mexico and Russia had a private meeting to discuss possible joint production cuts. Neither non-OPEC producer was prepared to cut. They have their own reasons. So OPEC took a bold decision. In the current circumstances, it could not act alone. It agreed to keep the same production level and to let the market balance itself.
Soon after the OPEC meeting, various theories were put forward about OPEC’s and Saudi Arabia’s intentions. The conspiracy theory shifted completely. From being against Russia and/or Iran, to being all about hurting US shale oil production. And others said OPEC was dead! It was like staring into a mirage. It was all nonsense but it does have an impact on the direction of the oil price, at least for a couple of weeks.
Ladies and gentlemen. I will now talk about the second question put to me by Governor Mark Carney: where’s the oil price heading? Minister Naimi is often asked this question and he replies: if he knew the answer, he’d be in Las Vegas. None of us know the future.
Once the conspiracy theories lost their allure, serious commentators got back to the fundamentals, and the price started to stabilize around $60 during the past few weeks. With this in mind, I have reasons to be optimistic. It’s my view that optimistic and positive people are more right than wrong. I’m confident that demand is, and will be, stronger. I’m also confident that supplies will be just sufficient to meet demand and that prices will firm up.
Why am I confident in both the short and long term? First, I believe the global economy will continue to grow, especially in emerging and developing countries. Second, the global population will continue to increase and third, day after day thousands of people enter the middle classes and this will further increase demand for energy. Europe may be the exception, but overall the global picture remains positive.
The problem, as I stated at the outset, is wild price swings, up or down. These are no good for producers, consumers or investors. Oil is a long-term business, requiring long-term plans and long-term investor confidence.
As I said, I do not believe the recent huge price drop is justified only by a change in fundamentals. As with all markets, there is an element of herd mentality that can often take over. One thing that will never be in short supply is analysts predicting the worst. Some want to take extreme views for their work to be read, noticed, and get quoted.
While keeping optimistic about the future oil market, we have to keep in mind that oil prices, and supply and demand, are ever changing. The best way to minimize their negative impact is to resist the conspiracy theories and correct the misinformation.
Saudi Arabia is, and remains, committed to stable oil prices that are fair for producers and consumers, and fair for the global industry and global economy. We want a transparent and balanced oil market. We seek to meet the demands of our customers. We have a long-term view, and we do not make knee-jerk reactions to headlines.
Thank you for listening.
* * *
And now a special challenge for Zero Hedge readers: spot the number of lies uttered by the advisor in the text above. We exclude his repeat denials of the "conspiracy theories" - those don't count.
»
- 223456 reads
- Printer-friendly version
- Send to friend
- advertisements -
Me 2! Why should our loyal Saudi friends lie to us, their protectors and best customers? In their gentle Kingdom, they solemnly guard Medina and Mecca, the HQ of their quaint Faith! Women are so honored, they do not drive cars, lest they get hurt in an accident. Men must drive for them! Look at the giveaway price they are charging us for oil right now! If that's not friendship, then Barrie is gay!
stopped reading at conspiracy theories......utter bullshit
Halliburton!!!!
Just thought I'd throw that in there for old times sake.
This just in: Muslims are liars and manipulators. It makes perfect sense to damage or destroy your primary competition... and it doesn't take very long.
Loveyajimbo- Muslims are liars. You need not add in the "and manipulators" because lying is the manipulation of truth. I believe their "religion" tells them it's ok to lye infidelly.
You no Muzzie then you are infidelly
you SURE youre not describing CONgress???
Speculation is exactly what Obama and the democrats said brought down the stock market in 2008.
They'll never tell you that it was their buddies in government who were pumping home loans to anyone with a pulse, packaging these toxic loans Into MBS's that were mostly from Fannie/Freddie that were traded on the stock market by friends of government Goldman Sach's that were then wrapped up with derivatives that were allowed to continue even after being warned by brooksly borne that they were weapons of financial destruction and was ignored. The government was also warned by many others including Dr. Micheal Burry who then had the federal government up his ass.
I guess that all equals "speculation".
Compare what they said to their laws & orders, and think again.
don't worry be happy. idjit
Now that was a lot of "croc"!!
All conspiracy theories hinge on the horribly false assumption that the government is competent.
Not really. See ZH passim for a litany of "conspiracy theories" that were later admitted by the perps, charges filed, fines paid etc and so on - silver/gold "fixing" for one.
Also, as another poster points out, most of history (the interesting bits at least) is one conspiracy after another.
Society is based on hierarchy - those at the bottom know less than those at the top. This is our way of life. To say people can't keep secrets is flying in the face of daily reality.
Not to even mention compartmentalization, as pioneered on the Manhattan project, itself a conspiracy that ran in perfect secrecy for several years. So much so, that when Nazi scientists were told of Hiroshima & Nagasaki, they refused point blank to believe it...
Russia should raise the level of nuclear alert because of the oil price decrease. Russia should also raise the level of nuclear alert when Russian footbal team loses a game against a foreign representative... It is clear that Russia is a victim here and has all the rights to defend itself. It should start defending by attaching some defenseless countries it can find close to its borders. Or maybe attack, for defensive purposes, some African countries because they produce resources at lower costs than Russia.
Or maybe attack China because it's so threatening against the interests of Russian speaking people in China.
And, by the way, Vladimir Putin looks great with his bared chest driving a horse and killing a tiger in hand to hand combat! Yeah!
Its called a global recession bitchez
See there are perks to being with Goldman Saks. You go from local Ottawa yokel to dining with Kings and billionaires.
spot the number of lies uttered by the advisor in the text above
Thanks, but I'm not willing to waste too much concentration on parsing well-known bullshit. (And I'm putting in enough already on Ghordius' posts recently.)
But I would still be happy to hear the challenger's answer on it!
Saudis drove oilprice south because they want to be able to sell their only recources further in the next couple of years. Its called "the green paradox" that for example alternative energy could win the game because of great tax benefits and administrative help. So oil gets cheap.
Shale gas produktion first drove energyprices south and Oilcompanies got a lot of problems in their bilanzsheets. Secondly also shale industrie now gets same problems because of Saudi pricepolitics.
So prices of the competitors, of the shale-industrie and of green energy (mainly in EU and Germany) went down. It all is not working anymore because Saudi produce their only recources and sell it for "normal" price - but for some hundred years to go.
Adieu shale and green industry.
"First, I believe the global economy will continue to grow, especially in emerging and developing countries."
Total bollocks.
All price movement in markets is due to speculation. Investors make choices based on the return the expect in the future, They base that expectated return on speculation about what will happen in the future. To say oil prices are based on speculation is stating the obvious, like saying people buy cars because of where they want to go.
Speculation, manipulation, you know what he means...
The price of oil collapsed because of Putin's Russia.
PERIOD.
The Russian ruble has completely collapsed...looks like now Russia itself might.
Iran has attacked both North (Iraq) and South (Yemen.). China is a major world oil producer.
Energy prices save oil collapsed years ago in the USA.
Venezuela has no real money anymore and is trading oil for coffee beans.
The Mexican peso has collapsed.
European demand has fallen off a cliff.
The Canadian dollar has collapsed.
AND THIS IS JUST FOR STARTERS.
He starts the article off stating the two questions he was asked, and then stating, "I will tell you today what I said to him then."
He doesn't say any of this is the truth...but just that this is the lie he said to Carney then.
For the competition about number of lies, including the title, there are 1,387 words :)
just saying heh
blame sub-target inflation!
work up to blaming DEFLATION
So OPEC took a bold decision. In the current circumstances, it could not act alone. It agreed to keep the same production level and to let the market balance itself.
But of course, it's all so natural and the market is so free and it's all so genuine and innocent an there's the UN guaranteeing the application of the Chart's principles and the WTO watching... I hate all those conspiracy theorists! They make our leaders look so bad!
....
Shall I have to remind you the spread manipulation on sovereign bonds around elections in the whole Western and sorroundings in time of elections to cause fear? Libor's scandals? Barkley's scandals? Dumping practices? Flooding processes? ETCETERA?
Deflation you Saudi fuck!!!
puh leeeeze
saudi production cost $4 fracking production cost $80 venezuelan production cost $40 ... who will bleed out first and who will be the last monopolist standing at the doha podium?
Al-Muhanna:
you are a *fucking dumbshit* if you think we believe you.
you *lying sack of shit*.
Actually, he is right about demand being up slightly (gasoline, gallons per day)
After falling almost every month for the last 15 years, there has been a slight uptick the last half of 2014. NOT a trend yet, for sure.
These are actual numbers (supposedly), not seasonally qdjusted.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=A103600001&f=M
Yes it is, indeed it is. In fact growing so strong that demand for oil along with a slew of LEI's is all going down. BUT ladies and gentlemen we are growing.
And now a special challenge for Zero Hedge readers: spot the number of lies uttered by the advisor in the text above. We exclude his repeat denials of the "conspiracy theories" - those don't count.
Two thumbs up, Tylers! :)
He's only stating what you can see for yourself if
you bother to look at actual supply and demand numbers.
I thought we didn't buy "mark to fantasy" on this board???
The real market driver is a US$ bull triggered by a need
on the part of US financial interests to counter the ongoing
impact of the newly established SCO!
And I'll ignore other "bilateral trade" and CCDR type trade
deals that have been out there for at least 5 years... !
I have a simple , simple question - why wait until March 15th to put this out to the world? A TRUTHFUL policy , political or economic , would have addressed the issues raised by Carney immediately. Al-Muhanna sure wants the reader to believe that there is no validity in the conspiracy theory that the price drop was designed and implemented by " x " number of individuals. The motive remains unknown. In that regard , I love what G. Edward Griffin has to say about that : " history is full of conspiracies " - period.
Some unemployed Bakken employees strongly disagree with his assessment of "stable demand" and "commerical stocks within normal range." Of course, they are probably just bitter and don't know what they are talking about.
Can someone tell me why we should believe a single word that this guy says? Saudi "Royal" family are just a bloated corrupt gang of thieves.
Can you be a speculator when you have the Fed's inside track? Resounding NO. It's called Insider Trading. END THE FED and ALL who Sail on its back; Fucking Pikers.
$1 million of secret CIA cash intended for Afghanistan ended up with Al-Qaeda - report
Around $1 million of CIA money given to Afghanistan via a secret fund was reportedly used in 2010 to pay the ransom for an Afghan diplomat held by Al-Qaeda.
Abdul Khaliq Farahi was kidnapped in 2008 while he was the Afghan consul general in Peshawar, Pakistan, just weeks before he was due to begin his new post as Kabul's ambassador in Pakistan, the New York Times reported. He was eventually handed to Al-Qaeda.
His release came two years later once Afghanistan paid Al-Qaeda $5 million in ransom. A fifth of that ransom came from a monthly-cash fund set up by the CIA, NYT reported.
http://rt.com/usa/241213-cia-money-afghanistan-alqaeda/
its called salting the mine, you put a small amount of gold in the front to encourage the suckers to buy. the suckers are u.s. taxpayers and the mine is called the military industrial complex or the global war on terror
Go on. Give that guy a camel and get him outta here.
as true as the Koran
in an informercial there are never any lies, because the person asking the questions never asks a question for which the salesman would feel obliged to lie. will the saudis cut production?
For the first time in over 40 years the Saudis are practicing free market supply/demand economics in the oil industry, and now they act like they invented the concept. Ironically, they are able to use it as a weapon against other producers who have been preaching and championing the same concept for years.
But, that meeting between Saudi Arabia, Russia, Venezuela, and Mexico was a clear indication to me that the Saudi’s are ready and willing to jump back into full cartel mode as soon as they can find any cartel that actually works. I bet that would create some more wild swings in oil prices, you know, the thing they say is the worst thing for everyone.
Just for the record, if a senior executive of Exxon, Shell, BP, or any major western oil company attended that meeting they would have been arrested and convicted of international oil price fixing and thrown in jail.
The world is in the early throes of a deflationary depression which has been underway for some time but is yet to be fully acknowledged by global economists. In a deflationary vortex, the prices of everything decline... everything. Oil is just one asset class whose prices will plummet as the debt destruction shrinks the GDP of country after country. The global debt bubble has burst and nothing can stop the now persistent collaspe of global economies...
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
Never trust a man wearing a dress that worships a dead pedophile.
IRAQ FEARS A WAVE OF SAUDI REFUGEES TRYING TO ESCAPE THE ABJECT POVERTY OF OIL
Mercedes mass at the border. Saudis prefer facing death in Iraq, than having to face the prospect of paying taxes for the first time in their lives.
Source: www.financialpaparazzi.com
So, speculation by outsiders convinced insiders to sell oil at increasingly low prices? I'm not buying that. And Saudi officials NEVER tell the truth in public (see Prince Bandar bin Sultan al Saud).
i could not read it all as i am a poor
student and avoid all assignments, however,
price discovery is herd mentality. the upshot
is that the comment "fair to producers and consumers", has
embedded in it the presumption that the prince and king
remain prince and king a priori. the producers
and consumers can live in cages for all they care,
any objection met with a beheading to the fair and
balanced approach of the king or prince.
right there they can go fuck off. may the world remain
hostile to their tyranny into infinity.
..
there is more but i must regroup, knowing this is
all just bait to capture the fish in me.
...
Let me throw in a thought from left field. Perhaps the USSA [at the behest of Israel] is planning to start a huge, multi-front war to last several years. Perhaps with Russia and Iran as primary targets.
This would require enormous quantities of energy to push vessels around the oceans, fly aircraft all around the world, transport troops and equipment on the ground, etc. In other words, fuel costs will be enormous.
What would they do in such a situation? One quite obvious answer is... cause a collapse in oil prices much like has happened, then buy enormous quantities of oil futures (through their bankster intermediaries to hide the actual source of the buying).
This locks in low fuel prices for several years, even as spot prices soar.
I wouldn't rule this out, especially as the world continues to kick the "dollar habit".
Is this a "conspiracy theory"? I suppose. Is this plausible? I think so. Decide for yourselves.
ya right
US is going to start a world war at the behest of Israel
God what a bunch of crazies.
Ziomaniacs!
I find the "conspiracy theories" no less compelling after reading this. This idea of "herd mentality" explains nothing.
It was a lie of omission.
The price of oil dropped since it is obsolete as an energy source:
Source:
http://www.greenoptimistic.com/blacklight-power-akridge/#.VQfsyGwcShZ
Don't be the last to know.
Every time an Arab prince talks, your asshole is stretched wider.
Bullish!
"Does Saudi Arabia set the oil price? No."
How about what really happened after screwing over the world on oil price for years by manipulating OPEC production.
The real price of oil jumped out the second you stopped 20.00 bucks.