Saudi Arabia, the world’s largest crude exporter, may no longer be willing to act alone to cut production to bolster oil prices, according to Societe Generale SA.
The kingdom’s apparent refusal to reduce output unless other members of the Organization of Petroleum Exporting Countries do the same led Societe Generale to cut its fourth-quarter price forecast for Brent crude by $12 to $88 a barrel, Mike Wittner, the New York-based head of oil-market research at the bank, said in an e-mailed note today.
OPEC members Iran and Venezuela and major producers outside the group such as Russia are coming under increasing financial pressure from the drop in prices of more than a quarter since June. Saudi Arabia has larger cash reserves than any of its fellow exporters and can balance its budget at a lower crude price.
“They do not intend to be the sole swing producer any longer but will play the role if OPEC as a whole plays the role too,” Wittner said of the Saudis. “They are painting a very bearish picture of a market where prices go down to production costs.”
North Sea Brent, the benchmark for more than half the world’s oil, has fallen by more than $30 a barrel from its June high, closing yesterday at $83.78 a barrel, amid a supply glut and slower growth in world demand. Ministers from OPEC’s 12 members will meet in Vienna on Nov. 27 to discuss production and price levels.
Saudi Arabia needs to sell at $83.60 a barrel to balance its budget, the International Monetary Fund said, and the central bank has $745.9 billion in reserve assets, data compiled by Bloomberg show.
OPEC estimates that global production must fall by more than 2 million barrels a day in the first half of 2015 to balance the market. This is too much for Saudi Arabia to cover on its own, according to Bloomberg oil strategist Julian Lee.
Six OPEC producers plan to boost output next year, including Iraq, Iran and Venezuela, and this may prompt Saudi Arabia to seek individual output quotas for member nations before it agrees to any cutbacks of its own, Lee said in a report today.
Saudi Arabia increased output by 0.5 percent in September to 9.65 million barrels a day, according to data compiled by Bloomberg. OPEC as a whole pumped 30.9 million barrels a day in the same period, the most in a year.
Lower prices could help Saudi Arabia regain market share by slowing the shale-oil boom in the U.S. Extracting oil from shale costs $50 to $100 a barrel, compared with $25 a barrel on average for conventional supplies from the Middle East and North Africa, according to the International Energy Agency.