Saudi Arabia’s new oil minister Khalid al-Falih has told the Houston Chronicle in an interview that “the oversupply has disappeared.” Everyone who’s anyone carried the story, of course, with a sense of relief. Whether or not the glut has indeed “disappeared” is questionable: Al-Falih mentioned production disruptions in Nigeria and the decline in output across the U.S. shale patch as the main factors for the disappearance, and these are not necessarily stable trends.
The disruptions in Nigeria were not voluntary, after all, they were the result of terrorist attacks on oil infrastructure. Dependent as the country is on oil revenues, there’s a good chance all possible efforts will be made to restore output and, with prices higher, ramp it up. This is something that shale boomers are already doing, even though the EIA has estimated that overall shale output will decline in July. They are counting on better production efficiency to reduce their breakeven point but they can’t really afford to produce much less.
Anyway, the bigger news is that Al-Falih effectively signaled an end to the market share preservation policy pursued by his predecessor Ali al-Naimi. OPEC is set to stop pumping at maximum capacity (those that can, anyway) in order to preserve market share, however low prices may fall. it seems Saudi Arabia is serious about its Vision 2030 plan and the intention of weaning itself off crude.
I admit I was extremely skeptical about this plan. I still am, to be honest, because 2030 looks just too soon for the complete transformation the plan envisages. Still, it’s good to see they are serious about it, at least for the time being.