Saudis See All ‘on Board’ to Extend Oil Cuts for Nine MonthsBy and
Extension to cuts to help trim supply glut, Al-Falih says
OPEC, allies will take decision on cuts later this month
All oil producers participating in a deal to limit output agree on extending the cuts by nine months to help trim a supply glut, according to Saudi Arabia’s energy minister.
An extension through the first quarter of 2018 will help producers reach their goal of trimming global stockpiles to a five-year average, Khalid Al-Falih said. OPEC and other global producers such as Russia had agreed to reduce production in the first six months of this year, and the decision to extend the cuts will be taken when they meet in Vienna at the end of the month, he said.
“We believe that continuation with the same level of cuts, plus potentially adding one or two small producers if they wish to join, will be more than adequate to bring the balances to where they need to be by the first quarter of 2018,” Al-Falih said Sunday at a news conference in Riyadh. He spoke as Donald Trump spent his second day in Saudi Arabia, the world’s biggest crude exporter, on his first overseas trip as U.S. president.
“We think we have everybody on board,” Al-Falih said earlier, in an interview on Saturday with Bloomberg television. “Everybody I’ve talked to indicated that nine months was a wise decision.”
National representatives from the Organization of Petroleum Exporting Countries and officials from several non-members met in Vienna on May 19 to discuss the outlook for rising U.S. shale-oil production, which has been diluting the price impact of their production cuts. The producers, who together account for about half the world’s oil supply, have seen the initial price boost from their historic agreement fade as shale companies deployed more rigs and raised U.S. output to the highest since 2015.
“We welcome shale, we want it to be back, we want it to be at a moderate healthy level,” Al-Falih said Sunday. “Our interest is stable, healthy, balanced supply and demand on a global level, and for us to achieve that, we need stability for U.S. shale.”
Officials at the meeting in Vienna were relieved that two outside energy consultants had estimates for growth in average U.S. crude output of 450,000 to 500,000 barrels a day this year, lower than the 562,000 barrel-a-day forecast from OPEC’s own analysts, two delegates said.
OPEC and other producers who agreed to the cuts last year aren’t targeting a specific oil price, Al-Falih said in the interview. “Everybody wants the extension, as we realize we have not achieved the objective of bringing global inventories down to a five-year average."
Markets are now entering the high-demand season, Al-Falih said Sunday. “We’ve seen that the last few weeks with significant drops in inventories.”
Iraq’s Oil Minister Jabbar al-Luaibi said almost all countries participating in the cut had agreed to extend it, though there was no consensus yet on how long the extension should be. “Some ministers say nine months, some ministers think six months,” al-Luaibi said Sunday in an interview in Jordan. Iraq is OPEC’s second-largest producer; Saudi Arabia, the biggest.
While news of a proposal for a nine-month extension of output cuts helped send prices to a two-week high on Monday, benchmark Brent crude remains stuck below $55 a barrel, less than half the level it traded at in June 2014. Inventories in 35 of the world’s most industrialized nations -- the Organization for Economic Cooperation and Development -- were just above 3 billion barrels in April, or about 307 million above their five-year average, data from the U.S. Energy Information Administration shows.
OECD and non-OECD floating storage has been offloaded into tanks and consumed, and the world’s major economies are doing “reasonably well” suggesting their oil demand will grow, Al-Falih said. Producers are working on fixing some “deviations” to the output limits set when they agreed on the cuts last year, he added.
Producers have steadily improved their compliance with the deal, with Russia achieving its 300,000 barrel-a-day reduction after a slow start, Al-Falih said.
"I don’t accept that Saudi Arabia or any other countries should pick up the slack from others,” he said. “We did go the extra mile initially to set an example and be a role model, and I think our colleagues appreciated that and responded positively.”
— With assistance by Desley Humphrey, Wael Mahdi, Sam Wilkin, Arif Sharif, Zainab Fattah, and Vivian Nereim