Petroleum and Mineral Resources Minister Ali Al-Naimi gestures as he arrives at his hotel ahead of an OPEC meeting in Vienna.

RIYADH: OPEC’s biggest crude producer Saudi Arabia will have its sights set on the upstart US shale oil business at a crucial meeting to debate possible output cuts on Thursday.

Analysts say the Kingdom is content to see shale oil producers — and even some members of the group — suffer from low prices and will resist pressure to reduce output and shore up the cost of oil.

A barrel of crude has plunged by about one third in value since June to around $80 in an increasingly competitive market.

Petroleum and Mineral Resources Minister Ali Al-Naimi was silent about his government’s intentions on Monday as he arrived in Vienna ahead of the OPEC gathering.

“Is this the first time we have oversupply?” he was quoted as saying by Dow Jones Newswires when questioned about current supply and demand.

However his Iraqi counterpart Abdel Mahdi arrived in Vienna pushing for action, deeming the steep price drop “not acceptable.”

Analysts say the Kingdom is strong enough to withstand lower prices.

“Saudi Arabia wants to try and knock out shale oil competitors from the market,” said Saudi economist Abdulwahab Abu-Dahesh.

“They have the fiscal strength to remain steadfast for two to three years,” he told AFP.

Oil prices have collapsed to four-year lows on factors including dampening demand in a sluggish world economy, a sharp rise in output from shale oil and other unconventional sources, and a strong dollar.

Global oil prices fell Monday amid skepticism that OPEC would move aggressively to lift prices.

US benchmark West Texas Intermediate crude for January delivery dipped 73 cents to $75.78 a barrel on the New York Mercantile Exchange.

Meanwhile European Brent oil for January dropped 68 cents to $79.68 a barrel in London.

Although Saudi Arabia and its Gulf neighbors — UAE and Kuwait — could bear the burden of lower production, “I don’t think they will cut because they will lose their market share,” said Fahad Alturki, chief economist and head of research at Jadwa Investment.

Figures from the US Energy Information Administration showed Saudi exports to the US dropped by almost 30 percent from 1.25 million barrels per day in July to below 900,000 bpd in August, although it remains the second largest US supplier after Canada.

The Kingdom then cut its prices for crude sold to the US market, sending global prices plummeting in early November by almost $2.

Analysts saw the Saudi move as an effort to hold onto North American market share against cheaper oil from US shale fields.

Saudi Arabia also raised prices for its oil sold to Asia and other areas but was apparently “concentrating more on defending its market share in the US,” Commerzbank analysts said.

The Kingdom exports two-thirds of its crude to Asia but this year has seen its market share fall in China and India, said analysts from Platts, a global energy information provider.

OPEC pumped 30.6 million bpd last month, above its 30 million bpd target, according to the International Energy Agency which advises member countries on energy policy.

Of that total, Saudi Arabia produced around 9.6 million bpd in October, according to data cited by OPEC.

Some analysts expect OPEC’s 12 members to retain the 30 million bpd ceiling in Vienna.

“I think the only beneficiaries of an oil cut would be the shale oil producers who are now losing money as the prices are becoming lower than their marginal cost,” Alturki said.

Technological innovations have unlocked shale resources in North America and raised daily US oil output by more than 40 percent since 2006, but at a production cost which can be three or four times that of extracting Middle Eastern oil.

Alturki said that as prices fall into the $70 range “we think the basic survival of the shale oil producer will be a question.”

 
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