x Abu Dhabi, UAEThursday 27 July 2017

Japan, India cool on Saudi's $75 oil target

Big Asian oil consumers gave a cool response to Saudi Arabia's suggestion that $75 a barrel was a "fair" price.

Saudi Arabia says $75 a barrel is fair, but big Asian consumers say economic conditions warrant a lower price.
Saudi Arabia says $75 a barrel is fair, but big Asian consumers say economic conditions warrant a lower price.

TOKYO / NEW DELHI // Big Asian oil consumers India and Japan gave a cool response today to Saudi Arabia's suggestion that $75 a barrel was a "fair" price for oil, saying cheaper crude was preferable during the worst economic crisis in generations. While stopping far short of suggesting a new price target for Opec, Saudi Arabia's king and its oil minister said at the weekend that $75 oil would encourage new oil production from marginal, higher-cost sources, a move that analysts say is necessary to help prevent a possible shortage in years ahead.

While that is half the $147 a barrel record high hit in July, few in Asia were ready to embrace a higher medium-term equilibrium as they enjoyed $50 oil for the first time in over three years. "There are frequent comments by oil producers about $60-$75 per barrel," Toshihiro Nikai, Japan's minister of economy, trade and industry, told reporters in Tokyo. "But for us, the cheaper the oil price, the better."

Mr Nikai said he had told oil producers that Japan was struggling in the face of high oil prices, and they had responded by saying they also wanted to stabilise them. RS Pandey, India's oil secretary, also cited volatility as the greater concern. "As a major consuming nation we would like prices to remain stable and around this level," he said, declining any direct comment on his view of $75. "What is more important is there has to be stability in prices. Volatility of the kind witnessed this year has been very bad."

The weekend comments from Saudi Arabia's King Abdullah and Oil Minister Ali al Naimi were a surprise to many analysts as the world's biggest oil exporter has for years studiously avoided giving any signals on what it believes might be a sustainable long-term oil price even since crude broke Opec's $22-$28 band. Instead, most producers have emphasised the need to balance supply with demand, saying that prices ? fuelled by speculation, a shortage of refining capacity or the direction of the dollar ? had surged beyond fundamentals ? and beyond their control.

Although many in Opec are concerned at the unrelenting drop in crude oil prices, which fell to a three-and-a-half year low under $50 on Tuesday, the group deferred a decision on production cuts on Saturday until the group meets again in Algeria on Dec 17. Oil prices have tumbled $100 since July in a sell-off triggered by falling demand in Western economies, but that decline is also helping ease some of the pain.

With investors worldwide spooked by the prospect of recession and Japan seemingly on course for its longest-ever economic contraction, a higher oil price would make things even tougher. "Against this background, I think a rebound in crude prices again would be unbearable," said Shigeru Suehiro, a senior economist at Japan's Institute of Energy Economics. However the danger in that attitude is that oil markets could face a repeat of the price spike that began six years ago, when demand from emerging economies surged faster than anaemic growth in crude output after years of middling investment.

*Reuters