Saudi Arabia’s Energy Minister Khalid al-Falih said he thinks participants in the OPEC supply pact should continue to work together on rebalancing the oil markets beyond the end of 2018. Reuters photo by Heinz-Peter Bader.
OPEC supply pact set to expire at end of 2018
Saudi Arabia’s energy minister Khalid al-Falih said producers participating in the OPEC supply pact have agreed to continue to cooperate on production after the agreement expires at the end of 2018.
“There is a readiness to continue cooperation beyond 2018… The mechanism hasn’t been determined yet, but there is a consensus to continue,” Falih told Reuters after a meeting of the joint ministerial committee this weekend.
Reuters reports this is the first time the kingdom, the world’s largest oil exporter, has publicly said that the OPEC and non-OPEC members in the agreement would continue to cooperate on production levels beyond 2018.
No firm decisions on which measures the group would take to affect crude output have been made, but Falih said it is not out of the question that participants may agree to continue the production cuts in to next year.
The OPEC agreement along with strong global crude demand have helped reduce crude inventories worldwide. Falih believes that by the end of the year of perhaps in early 2019, the oil market will rebalance.
Falih added a deal on production levels post 2018 would be about “assuring stakeholders, investors, consumers and the global community that this is something that is here to stay. And we are going to work together.”
As well, the meeting focused on compliance with the current OPEC supply pact, according to Kuwait’s oil minister Bakheet al-Rashidi. OPEC data shows that pact participants reached 129 per cent compliance with the agreement in December.
Mohammed bin Hamad al-Rumhi, Oman’s oil minister said producers will likely discuss a possible renewal of the deal or a new type of agreement when the producers meet again in November. Oman favours a new deal, but the minister did not elaborate.
Saudi Arabia’s Falih warned the pace of inventory drawdowns may not continue at their current pace in the coming months.
“We are entering a low demand period seasonally, and we have to let that pass and see how inventories look in the second half before we consider any alteration” to current policy, he told Reuters.
Concerning OPEC’s goal of cutting oil inventories in industrialized nations down to their five-year averages, Falih said “I don’t think that we are going to reach our target anytime soon, certainly not in the first half.”
He added “I think we have to identify more clearly what is the normal level because five-year average – which five-year? The longer we wait to reach that target, the more the running five-year average increases and represents bloated inventories.”
As well, pact participants are concerned that rising oil prices will motivate US producers to boost their output. The US Energy Information Administration forecasts production from US crude producers to top 10 million barrels per day in the coming months.
Falih along with OPEC president and UAE minister of energy Suhail Al-Mazroui both believe that rising oil prices will not hurt demand for crude.
Further talks on the future of the successful deal are expected to occur at a meeting in June where OPEC along with Russia will discuss oil policy.