This increases the likelihood of a deal between OPEC and Russia being worked out next week. If Iran agrees to cap their production at 3.6 million barrels per day and Saudi Arabia cuts by just 0.5 million barrels per day the Iranians will get more money for the 3.6 than they would get for the 4.0, so why not try it.
DUBAI/LONDON (Reuters) - Saudi Arabia has offered to reduce oil production if rival Iran agrees to cap its own output this year, in a major compromise ahead of talks in Algeria next week, four sources familiar with the discussions told Reuters.
The offer, which has yet to be accepted or rejected by Tehran, was made this month, the sources told Reuters on condition of anonymity.
Riyadh is ready to cut output to levels seen early this year in exchange for Iran freezing production at the current level, which is 3.6 million barrels per day (bpd), the sources said.
"They (the Saudis) are ready for a cut but Iran has to agree to freeze," one source said. Three more sources confirmed the offer was presented to Tehran.
A source familiar with Iranian thinking declined to comment on details of the proposal but did not rule out the possibility of a compromise next week: "Let them all talk face to face."
There was no official comment from Saudi Arabia or Iran.
Saudi output usually drops in winter and spikes during hot summer months, hence Iran could dismiss the proposed reduction as an attempt by Riyadh to present a natural decline as a cut.
Iran has been promising to boost output to 4 million bpd, although production has stagnated in the past three months at around 3.6 million bpd, indicating the new push might be difficult without additional investments.
The first source did not say by how much Riyadh would cut if Iran agreed to a freeze.
Riyadh's production has spiked since June due to summer demand, reaching a record high in July of 10.67 million bpd and edging down to 10.63 million bpd in August. From January to May, Saudi Arabia produced around 10.2 million bpd.
Previously, the Saudis have refused to discuss production cuts.
OPEC officials from Saudi Arabia and Iran met this week in Vienna. According to sources, the gathering did not discuss the Saudi proposal, focusing instead on baseline production figures. The meeting produced no breakthrough, the sources said.
Two sources said Saudi Arabia's Gulf OPEC allies the United Arab Emirates, Qatar and Kuwait were expected to contribute to any output reduction.
Saudi Arabia, by far the largest producer in the Organization of the Petroleum Exporting Countries, will shoulder the biggest cut, the sources said.
The proposal can be seen as a shift by Riyadh, which orchestrated the current OPEC policy in 2014 by refusing to cut output alone to support prices and chose to defend market share against rivals, particularly high-cost producers.
A fall in oil prices to $30-$50 per barrel from levels as high as $115 seen in June 2014 led to a boost in global oil demand and a decline in high-cost supplies such as those from the United States.
But the Saudi strategy caused a rift in OPEC, whose poorer members have faced a budget crisis and unrest. Riyadh and its Gulf allies also had to tighten their belts after a decade of generous public spending.
As the pain of cheap oil grew and pressures on Saudi finances increased, Riyadh and Tehran signaled they were willing to show more flexibility to prop up prices.
However, the first attempt at a global production pact collapsed in April when Riyadh insisted Tehran participate. Iran has said it will not join any such agreement until it regains market share and boosts output to pre-sanctions levels of around 4 million bpd.
OPEC members will meet on the sidelines of the International Energy Forum, which groups producers and consumers, in Algeria from Sept. 26-28. Non-OPEC producer Russia is also attending the forum.
Saudi Arabia offers to cut production
Saudi Arabia offers to cut production
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Saudi Arabia offers to cut production
Saudi Arabia Is Forced To Raise Cash As Oil Prices Tank
http://www.forbes.com/sites/timdaiss/20 ... ank/print/
Saudi Arabia has seen better days, at least for its storied oil industry. From playing the part of the world’s swing oil producer for decades, ramping up or pulling back production as it saw fit, its power over the oil market has diminished.
Due to the U.S. shale oil boom that caught everybody in the Oil Patch off guard, including most in the U.S., global oil markets have been awash in supply, putting tremendous downward pressure on oil prices, which are off at least 60% since mid-2014.
During the summer of 2014, prices reached $115 per barrel but then started trending downward, reaching $26 in January, bouncing back to the $50s range briefly this year. It’s now hovering in the mid-$40s range.
Saudi Arabia’s quandary, however, can’t be blamed just on massive U.S. oil output — it must also be placed at Riyadh’s door. The Kingdom made the infamous decision in November 2014 to abandon its role of supporting prices and actually increased output, despite a growing supply glut and lower prices.
In fact, Saudi Arabia has been producing crude at record highs; first, to keep prices low to drive more U.S. shale oil producers out of business, and secondly, to protect market share in Europe and Asia, including China’s massive oil market, against Russia (the world’s top oil producer, which is producing crude at post-Soviet-era highs of around 11 million bpd) and against an upstart Iran that is trying to reach pre-sanction oil production levels.
However, despite Saudi Arabia’s game plan to hurt other producers, it has actually hurt itself in unprecedented ways.
Riyadh has been burning through foreign reserve holdings. The Kingdom’s foreign reserve holdings, most of which are believed to be in U.S. dollars, dropped 16%, from the same period in 2015, to $555 billion. This marks a drop of $6 billion from July, and their lowest level since February 2012. Holdings peaked in August 2014 at $737 billion before prices tanked in July that year.
Saudi Arabia has also been running budget deficits. In spite of these problems, Riyadh still refuses to agree to a production freeze or a production cut, despite considerable rhetoric lately, particularly with Russia.
Last year, Riyadh ran a budget deficit of nearly $100 billion due to lower revenue from beleaguered oil prices. The deficit will be reduced this year, but marginally. Riyadh expects a budget deficit of $87 billion for the year. The government has been borrowing domestically and abroad to help reduce the deficit.
News broke two months ago that Saudi Arabia would issue its first international bonds, possibly around $10 billion, while Citigroup, HSBC and JPMorgan Chase would be hired as global coordinators for the sale.
Yesterday, Capital Economics said that the bond sale, expected for early October, could be a record-breaking deal for emerging markets, surpassing Argentina’s $16.5 billion international bond sale earlier this year, despite a relatively modest yield that could be as low as 3.5%.
“Saudi Arabia’s upcoming international bond sale has sparked a lot of investor interest and we estimate that the Kingdom will manage to sell its 10-year debt for a relatively low yield of 3.50%-3.75%,” wrote Jason Tuvey, Middle East economist for Capital Economics.
Funds from the sale will help Riyadh adjust to lower oil prices, while avoiding a devaluation of the riyal, its currency. Along with Saudi Arabia, Ghana and Nigeria, also oil producers, will also seek to raise cash from international bond sales.
Of course, another way for Saudi Arabia to offset its budget deficits and raise more revenue would be to reach some sort of OPEC and non-OPEC producers’ agreement to cut production, restoring markets to equilibrium, helping global oil prices finally find a floor, and a so-called “new normal.”
However, if the on again and off again rhetoric of the past few weeks is any indication of the future, global oil markets as well as Saudi state coffers will have a much longer wait.
Let the international bond sale begin.
http://www.forbes.com/sites/timdaiss/20 ... ank/print/
Saudi Arabia has seen better days, at least for its storied oil industry. From playing the part of the world’s swing oil producer for decades, ramping up or pulling back production as it saw fit, its power over the oil market has diminished.
Due to the U.S. shale oil boom that caught everybody in the Oil Patch off guard, including most in the U.S., global oil markets have been awash in supply, putting tremendous downward pressure on oil prices, which are off at least 60% since mid-2014.
During the summer of 2014, prices reached $115 per barrel but then started trending downward, reaching $26 in January, bouncing back to the $50s range briefly this year. It’s now hovering in the mid-$40s range.
Saudi Arabia’s quandary, however, can’t be blamed just on massive U.S. oil output — it must also be placed at Riyadh’s door. The Kingdom made the infamous decision in November 2014 to abandon its role of supporting prices and actually increased output, despite a growing supply glut and lower prices.
In fact, Saudi Arabia has been producing crude at record highs; first, to keep prices low to drive more U.S. shale oil producers out of business, and secondly, to protect market share in Europe and Asia, including China’s massive oil market, against Russia (the world’s top oil producer, which is producing crude at post-Soviet-era highs of around 11 million bpd) and against an upstart Iran that is trying to reach pre-sanction oil production levels.
However, despite Saudi Arabia’s game plan to hurt other producers, it has actually hurt itself in unprecedented ways.
Riyadh has been burning through foreign reserve holdings. The Kingdom’s foreign reserve holdings, most of which are believed to be in U.S. dollars, dropped 16%, from the same period in 2015, to $555 billion. This marks a drop of $6 billion from July, and their lowest level since February 2012. Holdings peaked in August 2014 at $737 billion before prices tanked in July that year.
Saudi Arabia has also been running budget deficits. In spite of these problems, Riyadh still refuses to agree to a production freeze or a production cut, despite considerable rhetoric lately, particularly with Russia.
Last year, Riyadh ran a budget deficit of nearly $100 billion due to lower revenue from beleaguered oil prices. The deficit will be reduced this year, but marginally. Riyadh expects a budget deficit of $87 billion for the year. The government has been borrowing domestically and abroad to help reduce the deficit.
News broke two months ago that Saudi Arabia would issue its first international bonds, possibly around $10 billion, while Citigroup, HSBC and JPMorgan Chase would be hired as global coordinators for the sale.
Yesterday, Capital Economics said that the bond sale, expected for early October, could be a record-breaking deal for emerging markets, surpassing Argentina’s $16.5 billion international bond sale earlier this year, despite a relatively modest yield that could be as low as 3.5%.
“Saudi Arabia’s upcoming international bond sale has sparked a lot of investor interest and we estimate that the Kingdom will manage to sell its 10-year debt for a relatively low yield of 3.50%-3.75%,” wrote Jason Tuvey, Middle East economist for Capital Economics.
Funds from the sale will help Riyadh adjust to lower oil prices, while avoiding a devaluation of the riyal, its currency. Along with Saudi Arabia, Ghana and Nigeria, also oil producers, will also seek to raise cash from international bond sales.
Of course, another way for Saudi Arabia to offset its budget deficits and raise more revenue would be to reach some sort of OPEC and non-OPEC producers’ agreement to cut production, restoring markets to equilibrium, helping global oil prices finally find a floor, and a so-called “new normal.”
However, if the on again and off again rhetoric of the past few weeks is any indication of the future, global oil markets as well as Saudi state coffers will have a much longer wait.
Let the international bond sale begin.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Saudi Arabia offers to cut production
Bloomberg reported that Saudi Arabia, Iran and Qatar met at OPEC's headquarters in Vienna on Wednesday.
Iraq's OPEC governor said Thursday that now is the "right time" for a production agreement among top producers, raising expectations for an energy forum next week.
Falah Al-Amri, at an energy event in the United Arab Emirates, said that oil won't rise above $50 per barrel unless members of the Organization of Petroleum Exporting Countries reach a deal to cut production, Bloomberg reported. He also said that current low prices were bad for producers and that Iran has reached its target.
Members of OPEC and other top producers will hold informal talks on the sidelines of the International Energy Forum in Algeria next week.
Iraq's OPEC governor said Thursday that now is the "right time" for a production agreement among top producers, raising expectations for an energy forum next week.
Falah Al-Amri, at an energy event in the United Arab Emirates, said that oil won't rise above $50 per barrel unless members of the Organization of Petroleum Exporting Countries reach a deal to cut production, Bloomberg reported. He also said that current low prices were bad for producers and that Iran has reached its target.
Members of OPEC and other top producers will hold informal talks on the sidelines of the International Energy Forum in Algeria next week.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group