OPEC’s deal to cap oil production may be extended beyond June if crude oil inventories remain high, according to OPEC’s largest member, Saudi Arabia, in an interview with Bloomberg.
When asked in an interview if Saudi Arabia, at the end of the six-month mark, would sit down with fellow producers and extend the cuts, Saudi Arabia’s Oil Minister, Khalid al-Falih, replied “If it’s needed, yes.” When pressed for details on what exactly would constitute “needed”, al-Falih rattled off a number of criteria:
“The sign that inventories are still above the five-year average, for example; if the markets are still not confident in their outlook; if we don’t see companies and investors feeling good about the health of the global oil industry.”
“We want to signal to them that we’re going to do what it takes to bring the industry back to a healthy situation,” al-Falih added.
The news comes after the WTI benchmark sat below $50 per barrel for about a week, thanks to US crude oil inventories resisting drawdowns and OPEC’s Monthly Oil Market Report released Tuesday, which showed Saudi Arabia, according to direct communications, had increased production in February. Although Saudi Arabia’s February production of 10.011 million barrels per day is still below its promised cut, the increase over January’s 9.748 million barrels per day suggested to some that Saudi Arabia was dissatisfied with the responsibility of cutting deeper than necessary, while other less compliant members such as United Arab Emirates and Iraq fail to meet the cut demands, and while US shale and Nigeria turn on the taps and threaten to upset market share. Today’s words by al-Falih are in contrast to words he spoke at an energy conference in Houston last week, where he cautioned oil industry attendees that they should not assume that OPEC would extend the cuts, singling out North Dakota producers who have enjoyed a lift in Brent prices to warn there would be “no free rides” for shale producers.
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Those strong words were followed shortly thereafter by falling oil prices, and yesterday, after OPEC’s report showed that Saudi Arabia had increased production, al-Falih seemed to soften his stance to reassure unsettled markets that Saudi Arabia was committed to rebalancing crude oil fundamentals.
The reassurance went a step further today, as WTI and Brent traded down, with al-Falih going so far as to defend the non-compliant non-OPEC signatories—namely Russia and Kazakhstan.
“This is a six-month agreement; I don’t think we should be passing judgement in the first or second month,” al-Falih said, adding that he was in regular contact with both countries, and that they were both “fully committed” and just “trying to learn the process of controlling production.”
By Julianne Geiger for Oilprice,com