Davos Sees Aramco Waffling, OPEC Rhetoric, and US Downplaying Shale's Impact

All agree that the crude market will achieve rebalance later this year. File Image / Pixabay

Reassurances, waffling, and rhetoric informed Thursday's proceedings at the World Economic Forum in Davos, Switzerland, with Rick Perry, energy secretary for the U.S., grabbing much attention by telling Saudi Arabia and Russia that rising global demand will prevent the American shale boom from spoiling international crude markets.

In a rare joint meeting with the energy ministers of those countries, Perry said, "I don't think American shale production will be a spoiler: there is a lot of reforms going on around the world - in the kingdom [of Saudi Arabia], in Mexico, in India - those reforms have the potential to really drive the consumption."

In a sense, Perry was preaching to the converted: both Russia and the Saudis have repeatedly stated that markets are too much focused on the swings in U.S. shale production, and they reiterated this stance in Davos; Alexander Novak, energy minister for the former Soviet Union, also noted that demand is rising fast and old oilfields around the world are depleting, meaning U.S. production growth is unlikely to tip oil markets back into a surplus.

Given these circumstances, Novak earlier predicted that the market will to return to balance in the third or fourth quarter of the year.

Khalid Al-Falih, energy minister for the Saudis, got caught up in an embarrassing waffling of timelines when he declared in Davos that state-run Aramco's highly-anticipated initial public offering will occur "when the time is right" - a change from previous assurances that the IPO was "on track and on time" for the second half of  this year.

The media congregating in Davos also proved to be a good forum for the Organization of the Petroleum Exporting Countries (OPEC)' leader to wax enthusiastic about his cartel's achievements in revitalizing the crude market.

Mohammad Barkindo, secretary-general for OPEC, spent several uninterrupted minutes telling  Bloomberg television of what he views as the unprecedented spirit of cooperation that informs his cartel's cutback initiatives, and that "not one member country is thinking of opting out."

He added, "the market in the fullness of time, sometime this year, will return to balance"; the next step, he said, is to determine how to "institutionalize" the current partnership with OPEC and non-OPEC countries in order to sustain the rebalance.

Unsurprisingly, Barkindo was optimistic that all parties would agree to this institutionalization.

The International Energy Agency last week speculated that not only will U.S. output overtake Russian and Saudi Arabian production soon, its output combined with "substantial gains" in Canada and Brazil will offset steep declines in Venezuela and Mexico.