Kingdom's energy minister hints that the deal to support oil market may take new form
Saudi Arabia urges global oil producers to continue cooperation in 2019
Saudi Arabia, the world’s biggest oil exporter, urged major global oil producers to extend their cooperation that has helped prop up the crude prices to highest level in three years in recent weeks beyond 2018, and indicated that a deal next year may take a new shape.
“We shouldn’t limit our efforts to 2018 - we need to be talking about a longer framework of cooperation. I am talking about extending the framework that we started, which is the declaration of cooperation, beyond 2018,” Reuters cited Saudi Arabia’s energy minister Khalid Al Falih as telling reporters on Sunday in Oman.
“This doesn’t necessarily mean sticking barrel by barrel to the same limits or cuts, or production targets country by country that we signed up to in 2016, but assuring stakeholders, investors, consumers and the global community that this is something that is here to stay. And we are going to work together,” he said ahead of the joint ministerial committee which oversees implementation of the production cuts.
The comments are the first public mention of a potential new form of coordination between Opec and non-Opec producers including Russia into 2019. Oman’s oil minister Mohammed bin Hamad Al Rumhi said that producers were due to discuss in November this year whether to renew their cooperation agreement on supply cuts or enter a new type of agreement. Oman is in favour of reaching a new type of deal, he told reporters.
Both ministers however, did not elaborate as to what form the new deal may take or if the proposed idea has the backing of other major global producers. The current agreement on supply cuts is due to expire in December 2018.
“The [production] cut in 2019 should be seen positively in the market. Go to the end of 2016 and everybody was saying the compliance is not good and Opec would never do this [oil output cuts]. They managed to do that in 2017 and prices are up to where they are now,” said Sanyalaksna Manibhandu, the head of research at FAB Securities in Abu Dhabi.
“I personally think he is casting a wide net, saying we have done what we have done and we can do something else if we need to,” Mr Manibhandu added. The message from the Saudi minister is that the group “will do it again in 2019 to make sure that prices remain high”.
Mr Al Falih said the global economy's recovery and supply cuts have helped shrink global oil inventories and the oil market will return to balance in 2018. However, it remains to be seen if the market will reach balance by the first half of 2018.
The decline in Opec production and resultant price recovery is a boon for the shale oil producers. In its monthly report the International Energy Agency (IEA) warned that rapidly increasing production in the US could threaten the market's balancing. The energy watchdog forecast US supply growth will push its output past 10 million barrels per day (bpd), overtaking Saudi Arabia and rivalling Russia. US crude oil production rose nearly 300,000 bpd to 9.75 million bpd, Bloomberg reported earlier this month citing the government data.
Separately on Sunday, the UAE’s Oil Minister Suhail Al Mazroui said he expected a rebound of shale oil supply and that Opec producers were not underestimating its impact on the market, according to Reuters.
“If prices remain high, it is US shale producers who are benefiting more than the Opec producers but if Opec doesn’t do anything, they will also lose out, so they are basically treading a thin line between helping themselves and helping everybody else including shale producers,” Mr Manibhandu noted.
But both Mr Al Falih and Mr Al Mazroui said they did not think the rise in prices would hurt global demand for oil, according to Reuters.
“At some point, the market will have to look at an exit strategy, which they [ energy ministers] have not spoken about today. It’s good that they are setting up their stall so early in 2018 and looking ahead at 2019,” Mr Manibhandu said.