Opec prepares for higher supply in 2019 with possible curbs in the works
The exporters' group will reverse its current production increase strategy at its next technical committee meeting, in Vienna in December
Opec anticipates higher supply growth in 2019, as United States shale threatens to flood markets following a three-year rally in oil prices this year.
"In 2019 there will be a growth in supply so we’re looking at a different strategy than the 100 per cent conformity in 2016,” UAE Energy Minister and outgoing Opec president Suhail Mazrouei said, after the group's Joint Ministerial Monitoring Committee (JMMC) meeting in Abu Dhabi.
Opec and its allies outside the exporters’ group, led by Russia, met in the UAE capital to recalibrate their strategy of expanding production following a bearish turn of the markets last week. A record influx of US crude at 11.6 million bpd, outpacing Saudi Arabia’s output of 10.7 million bpd and Russia’s 11.4 million bpd, has caused prices to drop.
The exporters’ group, which had reversed output restrictions placed last year to boost production to temper a three-year rally in oil prices to around $80 per barrel this year, is now looking to resort to a strategy to curb output.
"Targeting 100 per cent [compliance] is no longer recommended for the ministerial conference,” said Mr Al Mazrouei.
"A new strategy needs to be formed, whether it's cuts or something else, it’s not increasing production definitely."
Opec’s de-facto leader Saudi Arabia, meanwhile, said it would draw back its exports for the month of December by as much as 500,000 bpd as it anticipates lower winter demand.
Saudi Energy Minister Khaled Al Falih, however, would not be drawn into a discussion on whether the cuts would be made using baseline output registered for the month of October or November.
"Saudi Arabia is flexible and will do what other countries agree to do. Our October numbers have been reported by other secondary sources. December volumes will be low, 500,000 bpd lower than November,” he said.
He also did not clarify whether the exemptions to production cuts extended to Iran in 2016 after its re-entry into the global oil markets, following the lifting of nuclear-related sanctions, would be extended this time after the reimposition of US sanctions.
Mr Al Falih expressed concerns, however, over the recent downward turn of the oil markets, which had through the summer held around $80 per barrel, only to fall to $69 on Friday, after the US Energy Information Administration reported higher US production figures and the White House granted waivers to eight of Iran’s top oil buyers.
“We’ll make sure we’ll steer the global oil markets … to make sure we don’t jerk the oil markets into swinging either side,” said Mr Al Falih.
"Russia’s contribution has helped us come out of a deep ditch. We’ve seen a pendulum swing from one side to the other. We need to steady the ship and steady the market further. We need to look at 2019 with the view to keeping the markets balanced."
Saudi Arabia and Russia, traditional arch-rivals have since 2016 worked in sync to counter US shale, joining hands last year to remove a five-year inventory level by undertaking 1.8 million bpd of cuts.
Opec secretary general Mohammed Barkindo said at the meeting that conformity on the earlier output increases, which had been in place since May, was at 104 per cent for the month of October. He said the committee was reviewing the market and would draw up a plan to deal with the prospect of higher supply in 2019.
Opec’s JMMC is next set to meet on December 5 in the Austrian capital of Vienna, a day ahead of its annual meeting.
Updated: November 12, 2018 11:27 AM