The Saudis has so far been trying to strike a balance between its own need for higher revenues to fund government spending and pleasing President Donald Trump by filling any supply gap.
Monday 20, May 2019
(Bloomberg) --Saudi Arabia and other key producers in OPEC signalled their intention to keep oil supplies constrained for the rest of the year, while pledging to prevent any genuine shortages.
It was less clear how far Russia, their main partner in the wider OPEC+ producers’ coalition, shared that view. While most nations at a meeting in OPEC supported extending production cuts to the end of the year, Russian Energy Minister Alexander Novak talked about potentially relaxing the curbs and wanted to wait and see what happens in the next month.
“We need to stay the course, and do that for the weeks and months to come,” Saudi Energy Minister Khalid Al-Falih told reporters after the meeting in Jeddah.
The Kingdom is not fooled by crude prices, currently above $70 a barrel in London and believes the market is still fragile.
The contrasting messages underscore the uncertainty in the global market. If ministers do not agree to an extension next month, the production cuts that ended the worst oil-industry downturn in a generation will expire. Yet their decision is clouded by the impact of US sanctions on Iran and the risk to demand from Trump’s trade war with China.
In a market where the preponderance of risks are on the supply side, with Venezuela and Libya also facing disruptions, what Saudi Arabia chooses to do with its ample spare production capacity may be the market’s deciding factor in the coming months.
Al-Falih gave a strong indication that prices were the priority and he was not about to open the taps.
Al-Falih said, “My recommendation to my colleagues will be to drive inventories down gently” by extending the current cuts into the second half, acknowledging consumers’ concerns about potential supply disruptions and promised to make sure no refinery or customer is left without their requirement of crude oil.”
Continuing the OPEC+ accord into the second half would not rule out a production increase. Saudi Arabia has been cutting far deeper than required under the deal and could boost output by about 500,000 barrels a day, equivalent to almost half Iran’s exports, without breaching its limit.
Russia’s Novak affirmed his commitment to the historic alliance, saying the production cuts have “proved very efficient.” That counts as high praise from the taciturn official, but before and after the meeting he also spoke of the possibility of relaxing the cuts.
All members are keen to avoid a repeat of last year when the group, faced with very similar circumstances in Iran, boosted output too fast and triggered a fourth-quarter price slump. Other ministers in Jeddah, including those from Oman and the UAE, also said the group should stay the course.
“The job is not complete, we are still seeing some inventory build-up and we need to attend to it,” added Suhail Al Mazrouei, the UAE Energy Minister.