‘Saudis protect market share through low prices’

‘Saudis protect market share through low prices’
Saudi Arabia is interested in low oil prices because it wants to be in a competitive position when prices rebound, Ed Hirs, from independent oil and gas company Hillhouse Resources, told RT.

Ministers from OPEC, the cartel of major oil exporting countries, are converging on Vienna. It is expected that during their key meeting Friday the organization will decide to keep a group output target of 30 million barrels per day. At their last gathering in the fall of 2014, OPEC decided not to limit production, sending already sliding oil prices into a further free fall. The price hit a near six-year-low and hasn't fully recovered since.

RT:How much are the shale drillers affected by low oil prices?

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Ed Hirs: The shale industry has really been hammered: 125,000 workers directly in oil and gas in the US have lost their jobs. More than half the number of rigs we had working this time of last year are now offline, and we’re seeing production begin to drop in the three major oil shale places across the US. The low prices have impacted the business.

RT:Do you think that was the objective of OPEC, in particularly Saudi Arabia, all along - to drive out the fracking industry?

EH: I don’t think it was the objective. What we had last year was that demand just didn’t grow as fast as supply did. The Saudis and OPEC have increased production since December with the idea that they would force the correction here that will happen a little faster than it would just normally through the course of events. Demand is increasing in the US for crude demands, and increasing in Africa and in Asia; it is just not increasing as rapidly as the supply came online last year.

Reuters/Lucy Nicholson

RT:By continuing this sort of policy of trying to maintain a low oil price, aren’t the Saudis, who are the main oil producers, shooting themselves in the foot?

EH: I wouldn’t say they are shooting themselves in the foot. They are protecting their market share, prices will increase over time. They are making sure that when the prices do come back that they are in a very competitive position. In any kind of industry, you want to be the low-cost producer; that gives you most profits going forward. The Saudis and OPEC are the low-cost producers in crude oil across the world. They are in a much better competitive position than any of the shale players in the US.

RT:What do you expect from the upcoming OPEC meeting?

EH: I expect more of the same. I don’t expect a change in policy. I think that is what we’ve been seeing in the press and the reports coming out of the interviews that have been given up till the meetings. I don’t think there will be a change in policy. This is pretty much what we expected in November last meeting – that OPEC is going to let the market settle out with the lower price and wait for demand to catch up with supply.

RT:Have they reached the base for oil, or is it going to drop further?

EH: We may see its drop a little more. I don’t think a price in the 40s is out of the question, but that won’t last for much longer. Again, we’re seeing production in the US drop off, and that will continue throughout the year, especially with prices just in the $60 region.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.