EMEA News
Saudi Wants A Freeze And Prices North Of $60, Say OPEC/Industry Sources
While skepticism has greeted Saudi Arabia's suggestion it will be more agreeable in the upcoming Organization of the Petroleum Exporting Countries' (OPEC) freeze talks, new rumours that it will support an output cap in order to maximize the profitability of its state-owned Aramco IPO are gaining traction.
An OPEC source said to be familiar with the matter told Reuters on condition of anonymity, "The Saudis are going to Algeria for a freeze; more and more ministers are now talking among themselves to evaluate their production position."
Another source said that during private talks with Nigeria prior to the failed OPEC freeze meeting in June, Khalid al-Falih, energy minister for the kingdom, "discussed a ceiling of 32 million barrels per day with flexibility towards [rival] Iran."
The source put the blame for the failed meeting squarely on Iran, which refused to consider the proposal, "so the ministers moved quickly to discuss the secretary-general nomination."
Falih also reportedly floated ideas on how to manage the supply glut, and he asked analysts about the price impact of a production freeze or even a cut.
Industry sources believe this shift in tone is due to the Saudis' attempt, under Deputy Crown Prince Mohammed bin Salman, to diversify its ailing economy, which is only possible by offloading a stake in Aramco.
The Saudis "want higher oil prices for a better Aramco valuation," one industry source told Reuters, adding that Aramco could be worth as much as $4 trillion and the IPO at least $2 trillion.
Another source said, "A stable oil price at a moderate level would help an IPO ... Saudi Arabia does not want to crash the price; their target indeed would be somewhere north of $50 - $60 or so."
Based on current trends, Ship & Bunker data indicates that would push IFO380 bunker prices in the primary ports into the mid $300/mt range.
But even in the safe realm of anonymity where the most optimistic forecasts are usually voiced, there is doubt that the Saudis will behave any differently in September than they did in the past: one source told Reuters, "I don't think anything Falih says means they are going to cut production.
"It means Saudi will be cautious in doing things that might flood the market."
Earlier this week, Al-Falih told the press, "The market is now saturated with stored crude at beyond usual levels, and we don't see in the near future a need for the kingdom to reach its maximum capacity."
