Opec meeting in June to address loosening the curbs that began in 2017
Saudi minister sees ‘likely’ oil supply boost in second half of 2018
Opec and its allies are likely to gradually boost oil output in the second half of the year to ease consumer anxiety as prices trade near $80 a barrel, said Saudi energy minister Khalid Al Falih.
The comments illustrate how the surge in crude to a three-year high has flipped the oil market on its head.
The period where major exporters banded together to claw their way back from a deep slump by cutting output is ending.
It’s being replaced by renewed fears about the impact of high prices on the global economy and rising political pressure from major consumers including the US.
"I think in the near future there will be time to release supply" smoothly to avoid shocking the market, Mr Al-Falih said at the St. Petersburg International Economic Forum in Russia on Friday. When OPEC, Russia and other major producers meet in June “we will do what is necessary” to reassure consumers, he said.
Oil fell sharply following the comments, with Brent crude losing as much as 2.5 per cent to $76.84 a barrel as of 10:53am in London. The international benchmark is still up 15 per cent this year.
At current levels, crude prices are starting to affect demand, said Daniel Yergin, vice chairman of consultant IHS Markit Ltd. He was echoing concerns voiced last week by the International Energy Agency, which advises the major oil-consuming nations.
The Saudi Minister spoke after talks with his Russian counterpart Alexander Novak in the Russian city. The group is discussing a plan to boost production for the first time since 2016 by ending a period where they made significantly deeper output reductions than specified in their original agreement, said people familiar with the matter.
They are still debating whether resuming normal compliance with the accord would mean nations individually moving back in line their targets, or whether the group as a whole would aim to fulfill no more than the specified 1.8 million-barrel daily reduction, the people said, asking not to be identified because the talks are private.
The first case would return only a limited amount of supply to oil markets, mainly from Saudi Arabia. The second could allow the group to boost output more significantly, as other members offset losses from the collapse in Venezuela’s oil industry.
Oil producers are debating an increase ranging from 300,000 barrels a day at the low end, backed by Gulf producers including Saudi Arabia, and a larger increase of about 800,000 barrels a day favored by Russia, one person said.
The size of the supply boost will be finalized at the next Opec meeting in late June. Typically the group operates by consensus, meaning members that have little prospect of boosting production - Venezuela, Iran and Angola - would have to agree to the proposal.
Whether the size of the supply increase is ultimately "a million, more, or less, we’ll have to wait until June," Mr Al Falih said.
Mr Novak echoed that, saying “it’s too early now to talk about some specific figure, we need to calculate it thoroughly.”