OPEC and Russia reaffirmed that they’ll persevere with oil-production cuts until the end of the year to clear a global glut and signaled their readiness to cooperate beyond that.
Russia is prepared to continue cooperating with OPEC and its de-facto leader Saudi Arabia even after the cuts expire, Energy Minister Alexander Novak said in a Bloomberg television interview held jointly with his Saudi counterpart. Producers should keep limits on output through 2018 as the market may re-balance at the end of the year or in 2019, Saudi Energy Minister Khalid Al-Falih said. Neither minister said whether the cuts would continue in 2019.
“The world’s two biggest oil producing and exporting countries can continue their cooperation for the good of the crude industry, for the good of stability,” Novak said in Muscat, Oman. The oil market still isn’t fully re-balanced, though ministers from the Organization of Petroleum Exporting Countries and allied producers agreed on Sunday in Muscat that their cuts pact is working, he said.
Oil ministers from several OPEC members including Saudi Arabia met with their Russian and Omani counterparts to assess compliance with the cuts accord expiring at the end of the year. Saudi Arabia and Russia are orchestrating the effort to trim production to drain stockpiles and prop up prices. While benchmark Brent crude has gained 2.6 percent this month, U.S. oil output is set for strong growth this year as prices rally, the International Energy Agency said on Friday.
Soft oil demand foreseen in the first half led the ministers to consider cutting for the full year, Al-Falih said. They agreed to cooperate beyond the end of this year, without deciding on a mechanism for this cooperation, he said.
“As we approach the re-balancing by the end of 2018, we need to extend the framework but not necessarily in the production levels,” Al-Falih said. Excess oil inventories have declined by 220 million barrels from a level of 340 million barrels in early 2017, he said. “We’re uncertain that the pace of inventory drawdown will continue in coming months.”
Russia agreed to continue cooperation with OPEC, even without cutting output, if that helps to support the market, Novak said in the interview. Ministers will need to see how the market develops before deciding if there’s a need to adjust caps on production, he told reporters earlier.
While neither Novak nor Al-Falih is the final arbiter of oil policy in his respective country, their flourishing partnership has helped deliver an unprecedented period of Saudi-Russian cooperation that is re-shaping the global oil market and energy geopolitics. The global cuts agreement, coupled with robust demand, has helped lift crude to a three-year high near $70 a barrel.
“We don’t feel that OPEC alone can do it,” Al-Falih said in the interview. “That’s why we waited until we had enough non-OPEC countries including Russia to come together in late 2016,” when the global producers first decided on the cuts.
The ministers gathered in Muscat held a teleconference with counterparts from two countries — Iraq and Kazakhstan — which haven’t complied fully with the cuts, Al-Falih said. While the Iraqi and Kazakh ministers said they face challenges, they expressed their commitment to improve their compliance, he said, adding that Iraq’s compliance has shown significant improvement. The compliance rate among all participants in the cuts accord in 2018 will beat the 107 percent average in 2017, Al-Falih said.
OPEC and its allies see merit in maintaining their output limits into 2019, Oman Oil Minister Mohammed Al Rumhy told reporters before the monitoring committee’s meeting. United Arab Emirates Energy Minister Suhail Al-Mazrouei said in a speech that global inventories are 118 million barrels above their historical five-year average, and the positive trend in OPEC’s compliance over the past five months will help to balance the market quickly.