Saudi Arabia’s former oil chief on Friday says he is skeptical a deal among producers will stick because most members of the Organization of the Petroleum Exporting Countries tend to cheat.
“The only tool they have is to constrain production,” the 22-year Saudi oil minister Ibrahim Al-Naimi told an audience in Washington at the Center for Strategic and International Studies think tank. “The unfortunate part is, we tend to cheat,” he said.
“There’s not much you can do if there is not maximum cooperation between the producers,” Al-Naimi added, asking the moderator jokingly, “I am assuming we are under chant house rules,” which means all his comments are off the record. They weren’t.
OPEC members reached a deal this week to cut oil production to drive prices up and stabilize the global market, which has been hurt by a prolonged glut. The glut has driven prices drastically downward from more than $100 per barrel to below $40 per barrel in little over a year.
The drop has made it uneconomical to continue production in many cases, while countries that rely on oil to support their economies have found themselves in turmoil.
The low prices have hurt shale producers in the U.S., which use hydraulic fracturing, or fracking, which is more expensive than conventional drilling. Many fracking companies have been forced to lay off hundreds of thousands of workers.
Al-Naimi began the first OPEC meetings in 2014 to decide on production cuts, but no one except Saudi Arabia was willing to make the sacrifice, he said. “Nobody wants to take a cut,” he said.
Venezuela and Algeria refused, and Iran said it was under sanctions and could not, so an agreement could not be reached, he said. He said it is still questionable whether non-OPEC members such as Russia will abide by the deal. Al-Naimi said Vladimir Putin may not choose to reduce, as they haven’t in the past.
Naimi also said the decision not to cut production wasn’t to kill off the shale oil producers in the United States, but because no one wanted to make the necessary cuts in production and Saudi Arabia wasn’t going to be the only OPEC member to do so, he said.
“We weren’t contemplating whether shale oil will collapse,” Al-Naimi said. “That came later in the explanation to give our decision some dignity.”
