‘Market to remain oversupplied by March’
OPEC meets end of November to discuss cuts — Saudi
BONN, Germany, Nov 18, (RTRS): The world will still have a surplus of oil by end-March next year, Saudi Arabia’s energy minister said on Thursday, signalling a willingness to extend output cuts when OPEC meets at the end of November on whether to extend caps well into 2018.
Khalid al-Falih also said he did not want oil prices to rise too fast and too soon to shock consumers, adding that the exit from production cuts would be gradual to make sure market reaction is smooth.
“We need to recognise that by the end of March we’re not going to be at the level we want to be which is the five-year average, that means an extension of some sort,” he said, referring to inventory levels in the developed world.
“We have gone over 50 percent in reducing excess inventories but that means we still have some excessive inventories that we need to drain,” he told journalists on the sidelines of the UN climate conference in Bonn, Germany.
“We don’t want any spikes in price that shock the market. We don’t want any price movements that are unhealthy for demand. We don’t think we’ve seen any of that yet but that’s a potential especially if God forbid we have disruptions in any major country. We’re hopeful none of this will happen.”
Asked about the most recent spike in oil prices to a two-year high this month he said, “I am not distracted by short-term gyrations in prices and I certainly don’t spend time looking at hedge funds and the flows into financial investment instruments.”
Falih said it was too early to make an assessment on a possible extension to OPEC’s global oil output cuts now, but said Saudi Arabia favours making an extension decision at the next OPEC meeting at the end of the month.
“The Nov 30 meeting will be an important milestone to announce the way forward. My preference is to give clarity to the market and announce on Nov 30 what we’re going to do.”
He said Riyadh was in extensive consultations with all colleagues around the world within and outside OPEC.
Asked whether Russia was committed, Falih said: “I have had extensive consultations with my Russian colleagues and I will have some more in the next two weeks, but I know one thing is that the Russians are committed to working with Saudi Arabia and with the rest of the 24 countries that have come together last year.”
He said OPEC will have a better picture closer to the meeting on market fundamentals that will help in making the decision.
“We are waiting for October data to be fully developed and shared with the technical team,” Falih said.
“We’re also waiting for better projections of the fourth and first quarter which are typically lower demand and we will have picture of supply from sources that are not part of the deal. That will give us better predictions on when markets will balance as well as finishing the consultation.”
Asked how OPEC would deal with potential supply shocks to the market including from OPEC member Venezuela where oil production hit a 28-year low recently, he said OPEC’s reaction would depend on the length of the disruption.
“If anything is extended then we will take proper action to make sure that consumers around the world are not short of oil”.
“I assure you that nobody will be short of oil but at the same time we will not stop our current action until global inventories are rebalanced,” he said.
Asked what OPEC’s exit strategy from the supply control deal was, Falih said it would be one of gradual adjustment.
“We’ve done our reduction in a gradual way at the beginning of this year and it has worked beautifully so far”.
“We will be very mindful when the agreement ends ... so that we don’t enter a period of excess supply that builds inventories again,” he added.
Falih said Saudi Arabia’s market share remains “healthy” despite the cuts to its exports.
“We’re still number one or number two in all the major markets that we target like Japan, China, Korea, India.”
But in the United States, he said, Saudi Arabia deliberately trimmed its supply because it was an oversupplied market. He said US exports were already at 2 million bpd and the Americas as a region is also a major producer.
“The US has access to Canadian, Mexican, Venezuelan, the US Gulf of Mexico and of course shale production.”
Saudi Arabia’s action in the United States was unique to the country but was not intended to be permanent.
“Once the supply curbs are lifted we’ll probably be back in the US to make sure that our customers receive Saudi crude.”
Meanwhile, Saudi Arabia’s corruption investigations are linked to a just few individuals and will not hinder investments in the kingdom, its energy minister said on Thursday.
Khalid al Falih said the crackdown was way overdue and would also not have any impact on plans to float shares in oil giant Saudi Aramco.
“Everybody understands that this is a limited, domestic affair that the government is simply cleaning house,” he said on the sidelines of the UN climate conference in Bonn, Germany.
Saudi Arabia’s future king has tightened his grip on power through an anti-corruption purge by arresting royals, ministers and investors including billionaire Alwaleed bin Talal who is one of the kingdom’s most prominent businessmen.
The move by Prince Mohammed bin Salman against Saudi’s political and business elite also targeted the head of the National Guard, Prince Miteb bin Abdullah, who was detained and replaced as minister of the powerful National Guard by Prince Khaled bin Ayyaf.
The energy minister said many foreign investors who had been have been doing business in Saudi Arabia for decades “will tell you that they have not seen corruption in their interactions with the Saudi government or with the Saudi entities”.
“It (the crackdown) has no impact on foreign direct investment. It has no impact whatsoever on the kingdom’s openness, capital flows and our wide open investment environment,” he added.
Saudi Arabia’s plan to float around 5 percent of Aramco in an initial public offering (IPO) is a centerpiece of Vision 2030, a wideranging reform plan to diversify the Saudi economy beyond oil.