Saudis Plan to Boost Oil Prices to $60/Barrel This Year

Saudis Plan to Boost Oil Prices to $60/Barrel This Year

Oil field at dusk

According to industry sources, $60 per barrel is a good price to boost investments and prevent the U.S. from ramping up shale production.

According to multiple sources from OPEC and the industry, Saudi Arabia plans to push oil prices to $60 a barrel this year in a move designed to encourage new investments in the industry without allowing the U.S. boost its shale oil output.

The Organization of the Petroleum Exporting Countries (OPEC) along with Russia and other international producers vowed in 2016 to trim daily production to 1.8 million barrels starting Jan. 1, 2017. This would represent the first cut in the last eight years, and experts expect prices to jump and the oil glut to vanish.

Crude oil prices have jumped by over 14% since November, but a barrel still trades at $56. OPEC said that it is not its purpose to hit a specific price, but to help re-balance global oil inventories and the market.

Sources, however, claim that Riyadh and the other members of the OPEC hope prices to go up this year, because low prices have put a strain on their finances and laid the groundwork for a future supply shortage.

Nevertheless, OPEC doesn’t want prices to be too high as the U.S. might feel encouraged to boost shale production. America’s shale producers were badly hit by the lower prices in recent years and they were only able to survive due to technology advances.

They (the Saudis) want to see oil prices at $60 towards the end of this year. It’s good for (oil) investments,”

a person working for the Gulf oil industry said.

A separate source with no connection to the Gulf confirmed OPEC and especially Saudi Arabia want to see prices go up. Their reasoning? They want to boost investments, but the Saudis also want to sale a stake in the state-owned gas and oil giant Saudi Aramco.

Analysts noted that more than $1 trillion in oil investment projects had to be postponed or canceled over the last 30 months. Fewer investments, though, are often associated with uncontrollable oil prices and supply shortages.

A conventional oil field needs four years before it can produce something, while the U.S. can extract shale oil within months. Another source said $60 per barrel is a reasonable price as it wouldn’t encourage the U.S. boost shale output. Production of shale oil is estimated to jump by 300,000 bpd by the end of 2017.
Image Source: Wikimedia

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