Saudi Arabia Warns Oil Market: ‘Will Not Allow Itself To Be Used By Others’

Saudi Arabia’s energy minister,

Khalid al-Falih took the stage to deliver the keynote address at IHSMarkit’s CERAWeek conference in Houston and delivered a stern warning to investors about the future of the oil market.

He has no doubt that global demand for oil will continue to climb, particularly in the developing world. Long-term supply, however, is in jeopardy.

Although the oil market is oversupplied right now, he is “most troubled by lagging progress in long-cycle development projects needed to provide the base-load of future supplies.” He fears an industry-wide drop in the development of long-term oil resources. This will lead, he warned, to a future marked by severe price spikes, “acute energy poverty” in the developing world and high market volatility.

The cause, he admonished, are “misguided” projections of peak oil demand. It is problematic, in his mind, that some in that some in the industry think demand will only decrease long-term. Asia “is still thirsty for oil” and demand for petroleum imports will continue to grow steadily in the developing world . If investors make decisions based on false forecasts of peak demand, he warned, then underinvestment in oil will compromise global energy availability.

Saudi Arabia is not fooled by the exuberant return of short-cycle investment in shale oil and neither should the market.

“Regardless of what you might hear elsewhere,” al-Falih said, Saudi Arabia, “Welcomes the return of investors to U.S. shale.”

His government has always taken a long view of investment in the energy sector and is continuing to invest and plan accordingly, but he would “love to see some of that [global] investment in short cycle projects shift to long term.”

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He had another stern warning to fellow OPEC and non-OPEC producers. Saudi Arabia, he said, is still undecided as to whether the so-called historic OPEC and non-OPEC production deal should be renewed for another six-month period. In other words, other producers should not assume that Saudi Arabia sees continuation of the production cuts as in its interest. The cuts may be abandoned.