Saudi Arabia declares oil output cut ‘is not going to happen’

Saudi Arabia has ruled out a deal by major producers to cut oil output and warned high-cost operators such as US shale drillers to trim costs or go bust in a stark message that triggered fresh pressure on crude prices.

Saudi oil minister Ali al-Naimi said a lack of trust between the world’s biggest producers meant a cut in production “is not going to happen”. He said the kingdom would instead push for a co-ordinated production freeze to help balance a market swamped with an excess of crude which has taken oil prices to their lowest level in more than a decade.

“There is less trust than normal,” Mr Naimi told energy executives in Houston. “Not many countries are going to deliver. Even if they say they will cut production, they will not deliver.”

Internationally traded Brent crude dropped $1.33 a barrel to $33.35 after Naimi’s remarks on Tuesday, while the US marker slid $1.54 a barrel to $31.85.

The minister was speaking at an annual conference of US energy industry leaders and companies whose prolific exploitation of shale deposits helped topple oil prices, wreaking havoc on the economies of oil-rich countries.

In the absence of co-ordinated action, Mr Naimi said balancing supply and demand should be left to the market.

Naimi, 81, a veteran of booms and busts, denied Saudi Arabia was waging a war with US shale producers. But he said reducing volumes would only provide economic support for expensive oil, such as output from the US or the oil sands of Canada.

“The producers of these high-cost barrels must find a way to lower their costs, borrow cash or liquidate,” Naimi said at the IHS CERAWeek conference.

“It sounds harsh, and unfortunately it is, but it is a more efficient way to rebalance markets. Cutting low-cost production [such as Saudi Arabia’s] to subsidise higher-cost supplies only delays an inevitable reckoning,” he added.

Mr Naimi’s remarks come a week after Saudi Arabia joined Russia, Qatar and Venezuela in a provisional output “freeze” if other large producers also agree.

The announcement, which was the first sign of co-operation between producers within and outside the OPEC cartel, raised hopes of a move toward action that would curb an oversupply of more than 1m b/d.

Naimi called the freeze the “beginning of a process”, and said he sought to meet again with other big producers in March in hopes that they would join.

Senior Gulf officials have said in the past week an agreement to restrain production could be a prelude to further action in the form of production cuts, an idea Mr Naimi appeared to distance himself from.

Oil traders have been more sceptical, noting OPEC members Iran and Iraq have not joined the accord.