Mobius Says Saudi Realization Its Policy Failed Led to OPEC Deal

  • Saudi policy to pump crude to destroy U.S. shale ‘not working’
  • Best bargains to be found in diversified oil companies

Saudi Arabia probably realized its policy of maintaining oil output to defend market share failed, leading to the surprise OPEC agreement this week to curb production for the first time in eight years, according to Mark Mobius.

The kingdom probably sees that increasing output and sinking prices further is dangerous given its growing budgetary needs, said Mobius, executive chairman of Templeton Emerging Markets Group. OPEC agreed to cut production to a range of 32.5 million to 33 million barrels a day, Iran’s Oil Minister Bijan Namdar Zanganeh said Wednesday after the group gathered in Algiers. The deal surprised investors as Saudi Arabia and Iran had signaled before the meeting that an accord was unlikely.

“There is always a trade off between price and output,” Mobius said in an e-mailed response to questions. “Their calculations have probably led to the conclusion that continuing to raise output in order to push down prices, in order to destroy the shale oil industry in the U.S., was not working.”

Oil prices surged the most in more than five months on Wednesday after the Organization of Petroleum Exporting Countries agreed to the production deal, which exempts Iran from capping output. Mobius said the deal “is not set in stone,” joining Goldman Sachs Group Inc. and Morgan Stanley in expressing skepticism that it can be implemented.

The worst is over for energy markets and the best bargains now are in the diversified oil companies with strong positions in exploration and production as well as refining and retail, Mobius said.

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