Opec will soon discuss with Russia a new way to measure oil stockpiles, with the Saudi Energy Minister saying that finding reliable inventory data has been a challenge to more than a year of oil-output cuts meant to curb the global glut.
Oil producers involved in the supply reductions, which have helped lift crude prices to three-year highs, will discuss which inventory levels to consider when they meet in April, Saudi Arabia Energy Minister Khalid Al Falih told reporters in Riyadh. More coordination is needed to assess inventories, Russian Energy Minister Alexander Novak said at the same meeting.
Russia, Opec and their allies committed to output cuts in November 2016 to reduce global inventories to their five-year average. Since then, the producers haven’t disclosed how this benchmark is defined, and Al Falih admitted after talks in Oman last month that a technical discussion was required on what the oil market needs in terms of inventory.
One possible new measurement would be to assess how long existing inventories would meet demand, or forward-day cover, Al Falih said. Finding reliable data for inventories remains a challenge, he said.
Citigroup Inc — along with a growing number of analysts — says the group can probably exit the strategy earlier than planned, at some point in the summer, as oil inventories are already back to normal levels. That contrasts with the view of the 24-nation coalition of oil producers, which says the surplus in industrialised countries is still substantial and has pledged to press on with the curbs until the end of this year.
Oil has been struggling to recover to levels seen before last week’s plunge as investors are wary that Opec’s strategy of curbing output could backfire and lead to a resurgence in US shale production. While oil stockpiles in developed nations have shrunk to the lowest since 2014, supplies still remain about 52 million barrels above the five-year average, according to the International Energy Agency.
Data on oil demand and stockpiles outside developed economies can be patchy, which is one reason why Opec and Russia based their target on more reliable data from the group of industrialised nations known as the Organisation for Economic Cooperation and Development. But accounting for inventories in other nations including Saudi Arabia, Brazil, China and crude held on tankers, Citigroup concluded the oversupply has been eliminated.
Al Falih said on Wednesday that he prefers to see producers maintaining the production cuts this year even if that would result in a small supply shortage.
“If we have to overbalance the market a little bit, then so be it,” he told reporters. “Rather than quitting too early and finding out we were dealing with less reliable information” of inventories, he said. It’s better to “stay the course and make sure that inventories are where the industry needs them,” Al Falih said.