Saudi Arabia says prefers tighter oil market to early exit from cuts

Saudi Energy Minister Khalid al-Falih said Opec would do better to leave the oil market slightly short of supplies rather than ending too early a deal on cutting output. — Reuters pic
Saudi Energy Minister Khalid al-Falih said Opec would do better to leave the oil market slightly short of supplies rather than ending too early a deal on cutting output. — Reuters pic

RIYADH, Feb 14 — Opec would do better to leave the oil market slightly short of supplies rather than ending too early a deal on cutting output, Saudi Energy Minister Khalid al-Falih said today.

Oil prices have slid nearly 15 per cent in the past three weeks, together with a broader decline in the stock market, due to fears about global inflation and rising US oil production.

The decline comes at a bad time for Saudi Arabia, which needs high and stable oil prices if it is to succeed in turning the planned share listing of oil giant Saudi Aramco this year into the world’s biggest share sale.

“If we have to err on over-balancing the market a little bit, so be it,” Falih said after meeting Russian Energy Minister Alexander Novak in Riyadh. Novak and other Russian officials also met Saudi King Salman in the Saudi capital today.

“Rather than quitting too early and finding out we were dealing with less reliable information ... Stay the course and make sure that inventories are where the industry needs them,” Falih said.

The Organisation of the Petroleum Exporting Countries, of which Saudi Arabia is de-facto leader, has agreed to extend oil supply cuts with Russia and other producers until the end of 2018.

Moscow, however, has signalled a gradual exit might be needed from the second half of this year.

Falih has insisted the cuts will continue throughout 2018 and, to avoid shocking the market, any exit after that would be very gradual.

Today, Falih said Opec and its allies would need to consider in coming months how to adjust targets, including how to measure the five-year average of oil stockpiles.

Opec has made the five-year average its main target and managed to reduce the glut to 100 million barrels above that benchmark, from 300 million when the cuts began in 2017.

Falih said Opec should take into account non-OECD inventories, floating storage and oil in transit. At present, targets are based on stockpiles in industrialised OECD nations.

“It is way too premature to discuss an exit strategy ... Do we need to adjust for rising demand and look at forward day cover? How do we deal with non-OECD inventory? (It’s) less transparent and reliable,” Falih said.

“We have to think of the global market, the centre of demand has shifted from OECD to non-OECD.”

“We will discuss it in April and June ... I think we are going to be sticking with our policy throughout 2018 and that is necessary to balance markets”.

Saudi export restraint

As Novak and Falih met in Riyadh, the Saudi Energy Ministry said it would restrain oil exports in March despite lower domestic need for crude.

The kingdom will keep its crude exports below 7 million barrels per day (bpd) next month, despite a maintenance shutdown of the 400,000-bpd SAMREF refinery, the ministry said, confirming a plan given by industry sources.

“Saudi Arabia remains focused on working down excess oil inventories,” a ministry spokesman said in a statement.

“Market volatility is a common concern for producers and consumers, and the kingdom is committed to mitigating this volatility and moderating its negative impacts by responsibly meeting its pledges” under the Opec-led supply deal.

Opec Secretary-General Mohammad Barkindo, who was also in Riyadh, said oil demand would grow this year at healthy levels and that data pointed to continued high compliance by producers in January with their pledges under the supply deal.

Opec has delivered more than 100 per cent of the output cuts that members pledged under the deal, according to figures from Opec and other analysts, helped in part by an involuntary drop in Venezuela, where output is falling amid an economic crisis.

The Saudi ministry also said production by Aramco in March would be 100,000 bpd below February’s level, suggesting Saudi Arabia will continue to pump less than its Opec target. — Reuters

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