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No Opec cut even if oil price drops at $20

Riyadh: Opec will not cut oil production even if the price drops to $20 a barrel and it is unfair to expect the group to reduce output if non-members do not, Saudi Arabia said.

“Whether it goes down to $20 a barrel, $40, $50, $60, it is irrelevant,” the kingdom’s Oil Minister Ali Al Naimi said in an interview with the Middle East Economic Survey, an industry weekly.

In unusually detailed comments, Al Naimi defended a decision by the Organisation of the Petroleum Exporting Countries (Opec), whose lead producer is Saudi Arabia, last month to maintain a production ceiling of 30 million barrels per day.

The decision sent global crude prices tumbling, worsening a price drop that has seen them fall by around 50 per cent since June.

Slower demand growth and a stronger dollar have also contributed to the slump.

Saudi Arabia has traditionally acted to balance demand and supply in the global oil market because it is the only country with substantial spare production capacity, according to the International Monetary Fund.

The kingdom pumps about 9.6 million barrels per day but Al Naimi said it is “crooked logic” to expect his country to cut and then lose business to other major producers outside Opec.

The increasingly competitive global oil market has seen daily United States output rise by more than 40 per cent since 2006, but at a production cost which can be three or four times that of extracting Middle Eastern oil.

“Is it reasonable for a highly efficient producer to reduce output, while the producer of poor efficiency continues to produce?” Naimi asked during the interview.

“If I reduce, what happens to my market share? The price will go up and the Russians, the Brazilians, US shale oil producers will take my share.”

Naimi added it is “unfair” for the group to reduce output because it is not pumping most of the world’s oil.

“We produce less than 40 per cent of global output. We are the most efficient producer. It is unbelievable after the analysis we carried out for us to cut,” he said.

Opec tried to seek market stability through a common front between members and non-members “but there was no way,” he said. In Asian trade on Tuesday prices nudged higher on hopes of improved economic figures from the United States.

US benchmark West Texas Intermediate crude for February delivery gained 64 cents to $55.90 while Brent crude for February was up 33 cents to $60.44 in afternoon trade.

Prices were above $100 a barrel earlier this year, a level which Naimi said “we may not” see again.

Repeating comments he has made elsewhere, Al Naimi said that oil prices will, however, improve.

“The timing is difficult to know,” he said, but international oil companies have reduced their future capital expenditures, “which means there is no exploration”. That, in turn, signals they will not have additional production, he added. The minister said Opec was not surprised by the extent of the price drop.

“No, we knew the price would go down because there are investors and speculators whose job it is to push it up or down to make money,” he said.

Al Naimi said that with their comparatively low production costs of $4-$5 a barrel, Gulf nations and particularly Saudi Arabia “have the ability to hold out”.

Other nations would be “harmed greatly before we feel any pain,” he added.

Russia, whose estimated production topped 10 million barrels a day this year, has seen its ruble currency collapse since last month’s Opec meeting, partly from the slumping global prices which hit Russian exports.

Moscow is also under sanctions for its seizure of Ukraine’s Crimea region.