(Updates with extra detail on production cuts. John Kemp is a
Reuters market analyst. The views expressed are his own)
By John Kemp
LONDON, April 12 Saudi officials should welcome
the recent decline in oil prices, which takes benchmark Brent
close to the level of $100 per barrel that everyone from the
kingdom's oil minister down has said is "reasonable" for both
consumers and producers.
For more than a year, Saudi officials have sought to anchor
market expectations by reiterating the $100 figure, though the
kingdom has often appeared more comfortable with prices around
$110, and adjusted production and exports accordingly.
But if the kingdom intends to stabilise prices around $100,
it will need to demonstrate that it as comfortable with prices a
little below this figure as it with prices a little above it.
For the target to be credible it needs to be symmetrical.
The rapid slide in Brent prices from almost $119 to
$103 in the space of two months is bound to concern policymakers
in Riyadh and other OPEC capitals.
But if Saudi Arabia and its closest Gulf allies want to give
the target substance, the kingdom may need to allow prices to
drop to $95 or even $90 before cutting production and trying to
jawbone the market higher.
It would mark a change from the approach last summer, when
Saudi and other Gulf officials appeared uncomfortable with
prices below $100, and appeared to start to try to push the
Saudi officials say the kingdom cut production in response
to reduced demand for its crude.
Brent prices have closed below $100 on just 24 trading days
out of 330 since the start of 2012. In contrast they have closed
between $100 and $110 on 93 days, between $110 and $120 on 174
days, and over $120 on 39 days.
Nonetheless, in July and August 2012, Saudi Arabia promptly
moved to curb production, apparently in response to the brief
period of trading below $100 in June. This early and aggressive
reaction cast doubt on whether the target is really $100, or
The market seems set to test their resolve again, as
analysts and speculators watch if Saudi Arabia tries to keep
prices above $100, or will let them slide under that threshold
for a time to lower market expectations and centre them on $100.
(Editing by Anthony Barker)