The only thing more surprising than the comment from Ali Naimi, the Saudi oil minister, that the oil market is oversupplied, is how seriously the market appears to have taken it. The oil price has dipped sharply today, according to some at least, because of Naimi’s comments.
The evidence Naimi cites is that the Saudis cut output last month by some 800,000 barrels per day. Some of this may have come from reduced Japanese output, after the earthquake put many of its refineries out of action. But this demand is likely to return relatively soon – it certainly shouldn’t be viewed as gone from the market in the long term.
Ali Naimi, the oil minister of Saudi Arabia, was in mischievous mood on Monday night, positing an oil price of $70 to $90 for the foreseeable future, and suggesting that oil consumers should be happy with such a settlement – because a price of more than $70 was needed to justify investments in renewable energy.
His remarks, which came in response to questions from the Financial Times at a dinner hosted by the Singapore International Energy Week, did not go down well with all sections of the audience – some were unhappy that the world’s biggest oil producer should suggest they be content with an oil price they felt was unnecessarily high.
Mr Naimi justified his $70 to $90 prediction, which he called a “comfortable zone” that should be welcomed by oil producers and consumers alike, by reference to renewable energy, which he suggested gave oil an “anchor” price. If the oil price were to fall below $70, then renewable energy would not be competitive, he said.