Sources: Saudi Arabia Wants Oil to Reach $60 During 2017

A source in the oil industry has said that Saudi Arabia wants the price of crude oil to increase to close to $60 per barrel in 2017.

That price level is where the heavyweight of OPEC and its allies in the Gulf – Kuwait, Qatar and the United Arab Emirates – believe would be enough to encourage more investment in new oil fields but would not lead to an increase in shale output in the U.S., said the same source.

OPEC, Russia and other oil producers pledged in late 2016 to lower production by close to 1.8 million barrels daily staring January 1. The first time production has been lowered in eight years is intended to increase the price of crude and eliminate the glut in the supply.

Crude prices have increased by just over 14% since the pact was made during November but are still just trading at approximately $56 per barrel despite high compliance by members of OPEC as well as non-members.

OPEC officials repeatedly have said the group is not targeting a specific price for oil and that the focus is on drawing down global inventories of oil and helping to create a re-balance in the market.

However, Riyadh behind closed doors, along with its OPEC allies in the Gulf hope there will be a higher price because low prices have pressured finances and created fears of a supply shortage in the future.

However, a price that becomes too high is not what they want either, as it would encourages U.S. rival shale producers to increase production one more time. Technology advances have made it far easier for the shale producers to adapt quickly to fluctuations in the price of oil.

The Saudis, said one industry source, want to see the price of oil reach $60 per barrel near the end of 2017.

Another industry source, who is not from the Gulf, said that OPEC and in particular the Saudis want prices higher not only for investment but because Riyadh is looking to sell a stake in Saudi Aramco its oil giant that is state owned.

Over a $1 trillion worth of projects related to oil were delayed or canceled since the middle of 2014. A drop in investments for future oil projects helped to trigger more concern that could cause a shortage in supply and spike the prices of oil.

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