Saudi Arabia sparked talk of a price war when it cut its official November prices, and then December prices for some customers. "Talk of a price war is a sign of misunderstanding, deliberate or otherwise, and has no basis in reality," Naimi reportedly said.
John Kilduff of Again Capital said, however, he believes Naimi was sending a message Wednesday. "It's clear now they're not going to be cutting production at the next meeting," he said. Naimi has been silent for the past several months as market speculation swirled about Saudi intentions—and oil prices continued to drop.
Kilduff said Naimi's comments about prices make sense, and the market jumped to the wrong conclusion when Saudi Arabia's oil company, Aramco, cut prices. "I think that it's formulaic. The curve drove them into discounting the price," he said. The forward futures curve for Brent has been in "contango," meaning future months are priced higher, a bearish sign.
"I do take them at their word on the comment that they're not engaging in a price war," said Kilduff.
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Saudi Arabia, the world's biggest oil producer, has indicated it does not want to go it alone with a production cut, and it has been adjusting its official selling price to maintain market share, particularly in Asia. But other members, who rely on higher oil prices to meet their budgets, are pushing for production cuts.
"They might be getting closer to where they don't want the price to drop any more," said Gene McGillian, analyst with Tradition Energy.
Saudi Arabia, as the world's largest exporter can have a major impact on prices if it shifts production. But analysts say it would want other producers to share any production cuts so it can maintain its dominant market share—an increasingly important position to hold on to as other producers look set to add more oil into the world market in coming years.
"It's kind of a middle-of-the-road statement. Unless they do something, this huge amount of oil on the world market is not going to change," said McGillian. "As far as the price war goes, I always thought their intention on not defending the price level was that they wanted to weaken some of the marginal producers. The problem is the marginal producers are other members of the cartel."
Increased U.S. oil production has helped add to a glut in the world oil market. The U.S. now produces about 8.9 million barrels a day, while Saudi Arabia produces about 9.6 million barrels. New figures on U.S. supply will be released in the government's weekly report Thursday morning.
"To me, the tone looks a little more constructive," said Haywood of Naimi. He said there is talk that OPEC would consider eliminating production of several hundred thousand barrels a day to get its production in line with its 30 million barrel a day quota.
OPEC reported that its production fell in October, narrowing the gap between its production and quota. The cartel said its collective crude production fell by 226,400 barrels a day to 30.25 million barrels, and that the Saudi output fell by about 69,900 barrels a day.