Crude prices tumbled more than 2% early Monday after Saudi Arabia's oil minister on Sunday said his nation won't unilaterally cut production without cooperation from both other OPEC members and non-OPEC nations alike. Oil prices have bounced from the initial decline but the comments reinforced Saudi Arabia's intent to hold the line on production.
"We tried, we held meetings [to discuss production cuts] and we did not succeed because countries outside OPEC were insisting that OPEC carry the burden and we refuse that OPEC bears the responsibility," said Saudi Arabian Oil Minister Ali al-Naimi.
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As reported here, Saudi Arabia was prepared to make production cuts in late 2014 but wasn't able to get assurances from other producers to do the same. Saudi Arabia is determined not to repeat its experience of the mid-1980s, when it cut production as oil prices fell but lost market share when other OPEC nations didn't follow suit. Today, the Saudi's aren't just worried about production from other members of the oil cartel, including Iran's potential reentry to global markets, but U.S. frackers and Russia as well (among myriad other economic and geopolitical considerations).
To be clear, Saudi Arabia isn't just thinking about U.S. producers but al-Naimi's comments hint at the Kingdom's apparent misunderstanding of how America's economy works.
Earlier this month, OPEC's Secretary General stated the obvious - that falling oil prices are hurting U.S. shale producers. On Friday, Baker Hughes reported the U.S. rig count fell for a 15th-straight week and is now at the lowest level since 2011. Many U.S. producers have cut jobs as crude prices tumbled more than 50% from 2014 highs and cut planned 2015 drilling budgets by $50 billion vs. a year ago, The WSJ reports.
Related: OPEC Secretary General masters the obvious, denies cartel targeting U.S. frackers
But overall U.S. production is still forecast to increase this year as companies focus on their best fields vs. new or fringe projects.
U.S. production "continues to defy expectations," the International Energy Agency reported earlier this month. The IEA also warned that continued production could soon overwhelm storage facilities, which are already near capacity. Should that occur, new production would go directly to market and put further downward pressure on crude prices, which were recently trading a hair below $47 per barrel in New York.
Related: Oil's "race to the bottom" shows OPEC's irrelevance: Ian Bremmer
It's unclear what the "pain point" is for U.S. producers - or Saudi Arabia for that matter - that will cause a significant decrease in production. But al-Naimi comes from a world where the government is the oil company (and vice versa) which is not the case here, as Rick Newman and I discuss in the accompanying video.
America doesn't have an energy policy, which has its disadvantages. On the other hand, private companies are beholden to investors and ultimately motived by profits vs. government policy, which does have its benefits.
Aaron Task is Editor-at-Large of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.
