Premature to discuss changes in output cuts: Saudi
riyadh — Saudi Arabia’s energy minister said it is premature to discuss any changes to the Opec-led supply cut pact as market rebalancing is unlikely to happen until the second half of 2018 even with the current outage of the North Sea Forties pipeline.
Any potential exit from current cuts would be done gradually once the market returns to balance but drawing down inventories will still take more time, Khalid Al Falih told Reuters on Wednesday.
“We haven’t seen any major declines in inventories that we didn’t expect. As we said last month, we still have approximately 150 million barrels of overhang, and it is going to take the second half of 2018 to draw that down,” Al Falih said.
“We expect the first few months of 2018 to be either flat or a build [in inventories] as it is typically the case with the seasonality with the oil market especially on the demand side,” he said.
“So, I think it is premature to discuss any potential changes in our course, and the earliest opportunity to assess where the market is in a major way would be in June.”
Opec and 10 other producers led by Russia last month extended an agreement to cut oil production by 1.8 million bpd until the end of next year.
The alliance is targeting the elimination of an oil glut to bring global oil inventories back to the industry’s five-year average.
Crude prices firmed on Wednesday, supported by a larger-than-expected drop in US inventories and the continued outage of Britain’s North Sea Forties pipeline system.
Al Falih, who holds the Opec presidency this year, said he does not expect the shutdown of the key North Sea pipeline to affect supply significantly.
Russia, which this year reduced production significantly with Opec for the first time, has been pushing for a clear message on how to exit the cuts so the market doesn’t flip into a deficit too soon, prices don’t rally too fast and rival US shale firms don’t boost output further.
Al Falih said he is in continuous discussions with his Russian counterpart Alexander Novak and that “Russia sees the benefit of continuing to cooperate.” — Reuters