Saudi Prince Doesn’t See $100 Per Barrel For Oil Ever Happening Again

Saudi Prince Alwaleed bin Talal made a very bold claim about the future of oil prices. In an interview with USA Today, he said that cutting oil production to force prices back up, as OPEC has done in the past, is not a good idea. The price of oil has fallen 50 percent over the last six months, to below $50 per barrel, the lowest it’s been in six years. Prince Alwaleed said that, despite low prices hurting the world’s biggest oil producers, $100 per barrel oil is never happening again.

That’s a bold prediction for an analyst to make, and so far, analysts haven’t yet made that kind of prediction, at least for the near term. However, Prince Alwaleed is not only a member of the Saudi royal family, he’s also a savvy investor and businessman. He told USA Today’s Maria Bartiromo the following:

“The decision to not reduce production was prudent, smart and shrewd. Because had Saudi Arabia cut its production by 1 or 2 million barrels, that 1 or 2 million would have been produced by others. Which means Saudi Arabia would have had two negatives, less oil produced, and lower prices. So, at least you got slammed and slapped on the face from one angle, which is the reduction of the price of oil, but not the reduction of production.”

For Saudi Arabia, it’s about market share. Iraq and Libya both have high production rates right now. The U.S. has been very successful exploiting the Bakken oil shale formation in North Dakota, along with other oil shale formations. So competition is very high, and supply is high, which means that cutting production to raise prices would destroy Saudi Arabia’s ability to continue competing in the world oil market.

But what about OPEC? Saudi Arabia might have heavy influence in OPEC, but they don’t control them. Prince Alwaleed believes that, even if OPEC did decide to cut production to drive prices back up, some countries, like Russia and Iran, would do their own thing anyway. He said, “We can’t trust all OPEC countries. And can’t trust the non-OPEC countries.”

As far as U.S. oil shale, Prince Alwaleed says that’s a new technology, and that extraction is expensive. Whether it’s sustainable at $50 per barrel or not remains to be seen in his eyes, but some companies are already cancelling contracts with rigs because production of oil shale costs too much at current prices.

The other side of this is that worldwide demand for oil is sluggish. Sluggish demand depresses the price of anything. Prince Alwaleed says that demand definitely has a role in the current oversupply of oil worldwide, and that we’ll see demand go up again, so prices will rise again. However, he qualified that with this:

“If supply stays where it is, and demand remains weak, you better believe it is gonna go down more. But if some supply is taken off the market, and there’s some growth in demand, prices may go up. But I’m sure we’re never going to see $100 anymore. I said a year ago, the price of oil above $100 is artificial. It’s not correct.”

It may be that the near future of oil prices is in the $50 to $70 per barrel range. Regardless, to hear a prince of one of the oil capitals of the world say that $100 per barrel is never going to happen again is astounding. Considering that Prince Alwaleed never agrees with what the Saudi oil ministry does, this is indeed worthy of note.


Featured image by Eric Kounce TexasRaiser. Licensed under Public Domain via Wikimedia Commons