Saudi claims oil price strategy success

Saudi Arabia says its strategy of squeezing high-cost rivals such as US shale producers is succeeding, as the world's largest crude exporter seeks to reassert itself as the dominant force in the global oil market.

The kingdom's production rose to a record high of 10.3m barrels a day in April and there is no sign that it plans to reverse its policy at next month's meeting of Opec, the producers' cartel, in Vienna.

"There is no doubt about it, the price fall of the last several months has deterred investors away from expensive oil including US shale, deep offshore and heavy oils," a Saudi official told the Financial Times in Riyadh, giving a rare insight into the kingdom's thinking on oil strategy.

The International Energy Agency, the world's leading energy forecaster, on Wednesday released data backing up the Saudi position. The agency said that with the number of rigs running in the US plunging by 60 per cent in response to lower oil prices, US shale oil production had "buckled" in April, "bringing a multiyear winning streak to an apparent close".

But the IEA also cautioned that it would be "premature" to suggest that Opec had "won the battle for market share". It said global crude supply was growing, even from high-cost areas such as Brazil, as well as from other Opec member states such as Iran and Iraq.

However, the Saudi official said he expected the kingdom to maintain its dominance of global energy, despite the growth of alternatives to fossil fuels and competition from rival oil producers within Opec and beyond. "Saudi Arabia wants to extend the age of oil," he said. "We want oil to continue to be used as a major source of energy and we want to be the major producer of that energy."

The official was speaking nearly six months after Opec, which is led by Saudi Arabia, took its landmark decision to keep output steady in the face of rising supply from rivals, rather than play its traditional role of cutting production to support prices.

The decision triggered a fresh fall in the oil price, throwing the budgets of the poorest exporter countries into disarray and forcing international energy companies to slash spending, drilling and jobs.

http://www.cnbc.com/id/102677623