Last two paragraphs says it all.
No end to oil rout as Saudi Arabia plays tough
"If prices stay low, we will be able to withstand it for a long time" - Aramco boss
By Ambrose Evans-Pritchard, International Business Editor Davos
7:12PM GMT 21 Jan 2016
Kingdom's oil chief says Saudis can withstand the price collapse, vowing to keep production at record levels
Saudi Arabia has vowed to continue flooding the global market with oil despite the collapse in Brent prices to a 12-year low, insisting that it will not cut output until Russia and other non-Opec countries agree to share the burden.
"We're not going to withdraw our production to make way for others," said Khalid Al-Falih, the president of the giant Saudi oil producer Aramco.
"If other producers are willing to collaborate, Saudi Arabia is willing to collaborate. But Saudi Arabia will not accept the role, by itself, of balancing a structural imbalance," he told the World Economic Forum in Davos.
• 'Drowning' oil market is here to stay, warns IEA
"We can take whatever the market serves us. If prices stay low, we will be able to withstand it for a long time. We have the lowest cost of production on the planet by a big margin, and Saudi Aramco has zero debt on its balance sheet," he said.
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Khalid Al-Falih, chief executive officer of Saudi Arabian Oil
The tough words came as Brent crude hovered at the once unthinkable level of $28 a barrel, with a plethora of warnings that prices could fall even further as Iran elbows its way back into the market after the lifting of sanctions.
Fatih Birol, the head of the International Energy Agency, said the Iranians are likely to dump an extra 300,000 barrels a day (b/d) on an already saturated by the end of March, rising to 500,000 by the end of the year. "There will be further downward pressure on prices," he told The Telegraph.
We expect a further 16pc fall next year
Fatih Birol, IEA
Yet Mr Birol said the collapse of investment is setting the stage for a powerful spike in prices later. "There was a 20pc fall in investment in upstream oil last year and that is the largest drop we ever seen in one year," he said.
"We expect a further 16pc fall next year. This is unprecedented: we have never seen two years in a row of falling investment. Don't be misled, anybody who thinks low oil prices are the 'new normal' is going to be surprised," he said.
Brent crude prices fell to as low as $27.78 on Thursday morning
For now, all attention is on how far the price can fall. Aramco's Mr Al-Falih said the market has "overshot on the low side" and will prices will inevitably recover soon as the high-cost drillers are forced out of the market.
Ibe Kachikwu, Nigeria's oil minister and outgoing Opec president, said the cartel cannot sit back and let market forces "dictate" wild gyrations without storing up huge problems for the future. "Non-Opec and Opec members need to talk. We need to put more effort into talking to the Russians," he said.
Mr Kachikwu said there ought to be an emergency meeting of the cartel before the next scheduled gathering in June to sort out what Opec's purpose still is at this point.
"That conversation is going to take place soon. There are a lot of concerns about this," he said, speaking at a panel hosted by CNN in Davos.
One by one, the non-Opec states are quietly edging towards a deal with the Saudis.
"We're ready to do it. We need to co-ordinate large non-Opec producers and Opec ," said Azerbaijan's president, Ilham Aliyev. His country produces 800,000 b/d.
Mr Aliyev revealed that Azerbaijan has been preparing for a "post-oil era" within twenty years but was caught off guard by the sudden crash last year.
"Every day we think this is the bottom, and then we see lower prices. Frankly it is a little bit exhausting, from a psychological point of view, not to mention that countries need to balance their budgets," he said. Azerbaijan's currency collapsed by 30pc last month after its fixed peg broke.
Kirill Dmitriev, head of Russia's sovereign wealth fund, said it is still too early for a deal with Opec. "Agreement is possible, but at the right time," he said.
Mr Dmitriev said there are too many conflicting agendas at the moment. "Some players believe that in 15 to 20 years, there won't be much need for oil because of electric cars. 70pc of oil is consumed in transport, and 42pc of that is in cars," he said.
"I don't think renewables or pressures from climate change are going to significantly reduce the long-term demand for oil.
Khalid Al Falih, Aramco
He said others want to "punish" US shale, or aim to block the entry of newcomers. "When all this has played out in a year, it will be much easier to sit down and reach an agreement," he said.
Aramco's Mr Al-Falih brushed aside the threat from renewable energy and the COP21 deal to cut carbon emissions.
"I don't think renewables or pressures from climate change are going to significantly reduce the long-term demand for oil. If electric vehicles take over, where does the electricity come from?"
Mr Al-Falih said the current circumstances are entirely different from past episodes when the Saudis stepped in as the world's "reserve bank" for the oil markets, traditionally cutting output to smooth over short-term shocks such as the Lehman crisis. The problem of oversupply is now structural, he said.
An additional 4.5m barrels a day (b/d) of US shale and rising production in Brazil and other parts of the world change the global balance.
Mr Al-Falih said Saudi output - currently 10.3m b/d - would be down to zero by now if the country had continuously trimmed to make way for others.
Most experts agree that cheap oil is a net stimulus for the global economy and should lift growth, even if the initial shock for energy companies and oil exporters is so intense that it is negative at first.
The much greater danger is that global spare capacity has dropped to wafer-thin levels as Russia and Opec fight for market share, as projects are shelved across the world, and as old wells are depleted.
It is not the price collapse that worries the IEA: it is the prospect of a global shock when the Saudis have flushed out rivals and the market springs back violently.
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