Khalid Al-Falih, the Saudi oil minister, acknowledged that global crude inventories aren’t draining as quickly as he expected, opening the door for an extension of the production cuts into the second half of the year. The potential rollover is a subtle yet significant shift from just six weeks ago, when the minister said that an extension probably wouldn’t be needed, according to Bloomberg.
Al-Falih’s concern about the slow pace of stockpile reductions was echoed by Suhail Al-Mazrouei, the oil minister for the United Arab Emirates.
Since the Organization of Petroleum Exporting Countries and some of its rivals, including Russia, agreed to cut output in late 2015, oil prices have stabilized at around $50-$55 a barrel, up from $45-$50 a barrel before. Yet, prices are struggling to rise further as U.S. crude stocks increase to record levels.
With the market starting to believe the cuts were backfiring by reviving U.S. oil production, Al-Falih and his Russian counterpart Alexander Novak called a news conference in Houston after a round of meetings to offer a united front, and insist the cuts will work.
‘Low Expectations’
"The market had low expectations, which we have exceeded by a large degree," Al-Falih said about the compliance level. "We are definitely on the right track and are picking up speed in terms of delivery."
Novak, who personally negotiated the cuts with Al-Falih in meetings and late night phone calls last year, said that compliance with the curbs will improve in the next three months. Novak promised that Moscow will cut production further. The Iraqi oil minister and Mexico’s deputy energy minister, alongside the OPEC secretary general, joined the news conference, repeating similar upbeat messages.
For all the theatrics on the sidelines of the CERAWeek by IHS Markit conference, which yearly gathers thousands of oil executives, bankers and investors in Houston, OPEC and non-OPEC ministers appear to be concerned that their production cuts is stoking a new shale boom. Novak said he and the other ministers discussed compliance, the possibility of an extension, and U.S. shale production in their meetings this week.
Lifted Forecast
“The green shoots in the U.S. are growing too fast,” Al-Falih said earlier at a plenary session of the Houston meeting, prompting laughs in the audience. Soon afterward, the head of ConocoPhillips, Ryan Lance, quipped U.S. shale wasn’t just green shoots, but actual "trees."
Saudi Arabia also put a price to continue its newfound cooperation with Russia and other oil producers. While Al-Falih didn’t rule out extending the duration of the supply cuts, he insisted the kingdom wouldn’t act alone.
"It is not going to be fair or acceptable that some countries will carry the burden for all," he said, referring to how Saudi Arabia is cutting more than it promised. "We’ve been willing to do it for the front end but we expect our friends and partners to pick up the slack as we move forward," Al-Falih said.
Russia and Iraq, the two largest producers involved in the deal after Saudi Arabia, have so far reduced output less than promised. Jabbar al Luaibi, Iraq oil minister, said there were "some differences here and there" about the cuts, but that Baghdad was "resolved 100 percent to solve those problems."
Russia gave assurances that it will cut another 40,000 barrels a day from supply this month, Al-Falih said. That would put the largest non-OPEC producer participating in the agreement about halfway to the 300,000 barrel-a-day cut that it pledged to implement by April or May.