Saudi Arabia is looking to offload a stake in its state-owned oil company Aramco after a slew of problems that include cheap crude amid budget pressures, and fear of a future supply shortage after two years of triggering an oil price war.
OPEC and other oil producing countries including Russia are set to resume talks to stabilize output in a meeting in Algeria later this month after tensions between Saudi Arabia and Iran blocked the effort to boost oil prices affecting the change of tone in the country.
“The Saudis are going to Algeria for a freeze,” according to a source in the Organization of the Petroleum Exporting Countries familiar with the matter. “More and more ministers are now talking among themselves to evaluate their production position.”
With Saudi Arabia in the lead, OPEC shifted its policy in November 2014 and refused to cut production in order to dissuade higher-cost competitors that ate into the group’s market share. Further, OPEC also removed its output ceiling on December 2015 which enforced the impression of a production free-for-all.
Saudi’s Energy minister Khalid al-Falih said that the world should have oil prices above $50 per barrel to ensure that the market is balanced. He also proposed that Saudi Arabia resume its role to balance supply and demand.
There is yet to be a definite change in policy although the country is working to increase oil prices as opposed to letting the market dictate the price.
In the latest meeting of OPEC last June in Vienna, Falih proposed the OPEC to have a new output ceiling according to people familiar with the matter. He also proposed several ideas in private meetings to manage the supply glut and questioned some of the independent analysts in the OPEC with regard to the implications of a possible production freeze or a cut.
In a private meeting with Nigeria’s oil minister before the OPEC meeting held June 2, Falih said that he was pondering a production freeze while increasing tolerance with Iran as it raises its output post-sanctions.
“The Saudi minister met with the Nigerian minister and discussed a ceiling of 32 million barrels per day with flexibility towards Iran,” one source said.
During the OPEC meeting, Gulf members proposed a ceiling but it was vehemently opposed by Iran.
“But Iran said no, so the ministers moved quickly to discuss the secretary-general nomination,” the source said. OPEC agreed to appoint Nigerian Mohammed Barkindo as the new secretary-general.
Saudi Arabia is the world’s largest oil producer, but sinking oil prices are straining its finances and caused a brief budget deficit last year that forced the country to seek other sources of income which include taxes and other fees as it cuts spending.
The country is also looking to boost non-oil revenue and modernize the economy under the “Vision 2030” led by Deputy Crown Prince Mohammed bin Salman.
The Saudis “want higher oil prices for a better Aramco valuation,” which is necessary if the kingdom wants to reach its goal of an initial public offering value of $2 trillion.
“Saudi Arabia does not want to crash the price. Their target indeed would be somewhere north of $50 – $60 or so,” a source said.