Riyadh: The Organisation of Petroleum Exporting Countries (Opec) and its allies outside the group will maintain their cuts in oil output until global production meets demand, Saudi Arabia’s Energy Minister Khalid Al Falih said.
Opec and its partners agreed last week to extend the cuts until the end of 2018, a strategy that has boosted prices to near the highest level in more than two years. Now the focus is shifting to how production will ramp up when the agreement expires.
“We will not let go of our current approach until we reach a balanced market,” Al Falih said Monday at a news conference in Riyadh after meeting with US Energy Secretary Rick Perry. “There will be plenty of supply to respond to any need.”
Global inventories have fallen since the production curbs took effect in January. By keeping 1.8 million barrels a day of cuts in place for an additional nine months, the oil producers aim to reduce stockpiles to their five-year average without overheating the market and eliciting a new surge in supply of shale oil. Benchmark Brent crude traded 0.4 per cent lower at $63.48 a barrel at 8.36am in London.
“The outlook for when we will hit the balanced market will be clearer in June, and we will start thinking of what we will do in 2019,” he said. “The intent is not overnight to open the taps and flood the market.”
There is still about 150 million barrels of “inventory overhang” that has to be drained, and this number probably won’t change much over the next four months due to “seasonal stock build” and increased output from US shale deposits, Al Falih said.
“The world needs shale oil to play a role,” he said, as shale is needed “to meet some of the demand.”