Saudi King Abdullah Dead -- January 22, 2015

He was about the only one who was in favor of a price war based on a Saudi prince some weeks ago (previously posted).

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Perhaps Not

Rigzone op-ed:

The freefall in crude oil prices continues unabated. During the latter half of 2014, crude oil plunged to less than half of its value earlier in the year. The sharp decline has sent the major suppliers into a tizzy, and the development threatens to profoundly alter the dynamics of the global oil and gas trade.

Much of this downward spiral results from the maneuverings of Saudi Arabia, which has been instrumental in Organization of the Petroleum Exporting Countries (OPEC) deciding to stop short of withholding production – despite the seeming reluctance of some other members. The speculation market is awash with talks of Saudi Arabia going all out to hurt Iran and nipping the growing shale oil industry in the bud. Moreover, those espousing this viewpoint suspect the Saudi-driven campaign will punish Russia for supporting the embattled Iran-backed regime of Syrian President Bashar Al-Assad in his country's ongoing civil war.

Despite the temptation to discuss the geopolitical motives of the Saudi government, it would be worthwhile to explore the economic and business rationale of such a move. From the Saudi government's point of view, letting market forces decide the price of oil would help to achieve its geopolitical aims and to reinforce its credentials as the top player in the global oil and gas trade.

Ali Al-Naimi, the Saudi petroleum minister, is not a man who lets emotions get in the way when making business decisions. A long-time official at Saudi Aramco, where he rose through the ranks to become CEO of the oil giant before taking the reins of the petroleum ministry in 1995, Naimi is a seasoned and hugely experienced veteran. By all accounts, he is a calm and deliberate person who would resist the urge to make a hasty decision that would hurt Iran or any other political rival. Saudi Arabia's decision to let market forces determine oil prices is a cold and calculated one, meant to reinforce the Kingdom’s position as the dominant supplier of crude for the foreseeable future – much to the consternation of some other OPEC members. With low production costs and burgeoning coffers, Saudi Arabia can withstand virtually any oil price for the short- to medium-term – unlike many other OPEC members.

Much more at the link. 

In conclusion, the Saudis' reluctance to lower crude production is based more on sound economic and business sense rather than the ulterior political motives often touted in public discourse. Some producers are bound to get hurt in the process, but market forces are invariably favorable only to the most efficient and the most resourceful.

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Also At Rigzone

Rigzone is reporting:

Oil trader Gunvor's head of analysis said on Thursday crude was unlikely to return to $100 a barrel in the foreseeable future, but prices were expected to be volatile as traders sought to move oil into storage during the current glut.

David Fyfe, formerly research chief at the International Energy Agency, said OPEC would not want to see a return to triple digits as lower prices, which have more than halved to below $50 since June, were only now starting to slow output from outside the producer group. "Why would they want that?"

Fyfe asked an oil storage conference in Amsterdam of allowing oil to resettle above $100 per barrel. "They'd be back at square one."

Gunvor traded around 2.5 million barrels of oil a day in 2012, according to the most recent data on the company's website, the equivalent of almost 3 percent of global supplies. Oil prices averaged around $110 a barrel between 2011 and 2013, but fast-growing U.S. shale output and slowing demand growth have seen prices collapse since June, falling to a near six-year low near $45 a barrel last week.

Fyfe said the gap between spot prices and barrels for later delivery could widen further as traders look to finance the storage of crude and as energy majors slash investments in future production. This market structure, known as contango, has already led traders to stretch the available storage space for crude oil and products in Europe despite a 30 percent capacity increase over the past five years.

Traders have also booked vessels with an estimated 40 million barrels of capacity to store oil at sea, while some are shipping additional crude to the United States where more on land tanks are available.

This is exactly what RBN Energy has also said recently.