Saudi Rejects Swing Role As Pressure Piles On OPEC
Saudi Arabia's signal that it would step back from its traditional swing producer role highlights OPEC's response to shifting fundamentals in the global market. Given the tensions in play, the coordinated action Riyadh is seeking will be difficult to organise but may well be necessary. The latest developments pose downside risks to our production forecasts for OPEC members, but could also put pressure on prices over the longer term should countries forgo planned upstream investment.
Reports are emerging that Saudi Arabia has signalled that any necessary curtailment of production by OPEC would have to come in a coordinated move. This marks a significant shift in strategy, given Saudi Arabia has previously moved unilaterally to balance the global market, acting to increase or reduce production in order to maintain supplies while simultaneously trying to protect prices. As OPEC's largest producer and holder of the majority of the organisations reliable spare capacity, markets have long looked to Riyadh to ascertain the state of global supply.
There were reports that as recently as November Saudi Arabia maintained its position that it was willing to act unilaterally regardless of the views of OPEC members. However developments from both within and outside OPEC suggest change is in order and that the shift is already underway. Mohammed Al Mazrouei, energy minister for the UAE, told reports that OPEC would act 'collectively' and that member 'cannot do something unilaterally.'
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