IHS CERAWeek 2016: Welcome and Ministerial Address

In the Welcome and Ministerial Address on Tuesday morning, His Excellency Ali Al-Naimi, Minister of Petroleum & Mineral Resources, Kingdom of Saudi Arabia, offered context on recent developments in the international oil market, saying that since he joined Aramco in 1947, he has seen oil prices of under $2/bbl and as high as $147/bbl-and much in between. Demand for oil remains strong, which he said is a reason he welcomes new supplies, including shale oil. Minister Naimi said that Saudi Arabia is "responding to challenging market conditions and seeking the best possible outcome in a highly competitive environment." He said that efficient markets will determine where on the cost curve the marginal barrel resides, and "cutting low-cost production to subsidize higher-cost supplies only delays an inevitable reckoning." Minister Naimi went on to say that he hoped that shale producers' responsiveness would continue because these supplies would be needed when, in time, the global oil balance tightens. He said that he was pleased to see that US oil producers are now allowed to freely export crude oil, as such movements increase the efficiency of the global oil market.

Turning to Saudi Arabia's oil policy, Minister Naimi said that the country remains "committed to meeting the demands of our customers." He said Saudi Arabia also continues to invest large sums to maintain spare oil production capacity to meet additional demand and address supply disruptions, should they occur. He also noted that the country seeks stable oil markets. As for the challenges posed by climate change, Minister Naimi said that Saudi Arabia has invested significant resources in seeking technological solutions to these challenges, including carbon capture and storage. He added that the answer to the problem of harmful emissions from burning fossil fuels is not to leave fossil fuels in the ground but instead to develop technology that "minimizes and ultimately eradicates" such emissions.

In a conversation with IHS Vice Chairman and CERAWeek Conference Chair Daniel Yergin after his address, Minister Naimi said the oil production "freeze" that Saudi Arabia, Russia, and other countries have recently discussed is the beginning of a process. He said there would hopefully be another meeting of producers in March, at which more agreements to freeze could be gathered. At the same time, Minister Naimi said that production cuts will not happen. When asked by Dr. Yergin if he has a picture of how the current oversupply of oil will end, Minister Naimi said that he was not certain when, but he did know that it will end at some point. In response to Dr. Yergin's question about the role of financial markets in oil price movements, Minister Naimi said that speculation has an impact on oil markets in the short term, although not the long term. He added that a problem is that the "short term is here to stay."

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.