Key Saudi Oil Adviser Warns on Herd Mentality

Photo Credit: March 14, 2015, Doha, Ritz-Carlton Doha, Institute of International Finance

Photo Credit: March 14, 2015, Doha, Ritz-Carlton Doha, Institute of International Finance

Ibrahim Al-Muhanna, advisor to the Minister of Petroleum and Mineral Resources for Saudi Arabia, gave a keynote at the Washington, DC-based Institute of International Finance conference in Doha on March 14th. Al-Muhanna had interesting insights on oil prices, OPEC and markets. Al-Muhanna reiterated there was no political motive behind Saudi Arabia’s decision to not cut oil production during the November OPEC meeting. He dispelled the idea that Saudi Arabia was in concert with the Obama administration to hurt Russia by lowering the global price of oil. Russia is highly economically dependent on oil and natural gas exports.

An excerpt from his speech:
“Ladies and gentlemen. A few weeks ago, in Riyadh, I was at a small, private function along with the British central bank governor, Mark Carney. Mr Carney asked me two questions. First, why did the oil price drop? And the second, where is the price heading? I will tell you today what I said to him then. I do not believe the fundamentals of supply and demand justified the sudden and rapid price fall during the second half of last year. The market was balanced, and commercial stocks were within their normal range. Yes, supply was starting to increase, but demand remained strong and there was not a very sudden rise in commercial stocks.”

Al-Muhanna also said that Saudi Aramco was not in a price war with other gulf producers. He also said the wide swings in prices are not good for producers, consumers and investors in the long-run, due to the heavy requirements for the energy industry.

Near the end of his speech, Al-Muhanna was quoted saying, “As I said, I do not believe the recent huge price drop is justified only by a change in fundamentals. As with all markets, there is an element of herd mentality that can often take over. One thing that will never be in short supply is analysts predicting the worst.”

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