Opec and Russia reaffirmed that they’ll persevere with oil-production cuts until the end of the year to clear a global glut and signalled they’re ready to co-operate beyond that.
Producers should keep cutting output until the end of the year as the oil market may re-balance at the end of the year or in 2019, Saudi Arabia Energy Minister Khalid al-Falih told a news conference in Muscat, Oman. The oil market still isn’t fully re-balanced, though the ministers from Opec and allied producers agreed yesterday in Muscat that their output-cuts agreement is working, Russian Energy Minister Alexander Novak said at the conference.
“As we approach the re-balancing by the end of 2018, we need to extend the framework but not necessarily in the production levels,” al-Falih said in a joint interview with his Russian counterpart on Bloomberg television. With a third of the surplus in global crude inventories still to be cleared, oil ministers agreed to co-operate beyond the end of this year, without deciding on a mechanism for this cooperation, he said.
Ministers from the Organisation of Petroleum Exporting Countries including Saudi Arabia met with counterparts from Russia and Oman in Muscat to assess compliance with the cuts accord expiring at the end of the year. Saudi Arabia and Russia are leading the effort to trim production to drain stockpiles and prop up prices. While benchmark Brent crude has gained 2.6% this month, US oil output is set for strong growth this year as prices rally, the International Energy Agency said on Friday.
Russia agreed to continue co-operation with Opec, even without cutting output, if that helps to support the market, Novak said in the interview. Ministers will need to see how the market develops before deciding if there’s a need to adjust caps on production, he told reporters earlier.
Al-Falih said that soft oil demand foreseen in the first half led the ministers to consider cutting for the full year. “We’re uncertain that the pace of inventory drawdown will continue in coming months,” he said. Excess oil inventories have declined by 220mn barrels from a level of 340mn barrels in early 2017, he said.
The ministers held a teleconference with counterparts from two countries – Iraq and Kazakhstan – which haven’t complied with the cuts, al-Falih said. While the Iraqi and Kazakh ministers said they face challenges, they expressed their commitment to improve their compliance, he said, adding that Iraq’s compliance has shown significant improvement. The compliance rate in 2018 will beat the 107% average in 2017, al-Falih said.
Opec and its allies see merit in maintaining their output limits into 2019, Oman Oil Minister Mohammed al-Rumhy told reporters before the monitoring committee’s meeting. UAE Energy Minister Suhail al-Mazrouei said in a speech that global inventories are 118mn barrels above their historical five-year average, and the positive trend in Opec’s compliance over the past five months will help to balance the market quickly.
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