OPEC signals it’s in no hurry to hike output
Organization rebuffs Trump’s demand for immediate boost in production of oil
OPEC and its allies try to reassure the market that more oil is coming but stopped short of the supply boost some people, notably President Donald Trump, are seeking.
OPEC and its allies tried to reassure the market that more oil is coming but stopped short of the urgent supply boost that some people — notably President Donald Trump — are looking for.
The group is just halfway toward its June pledge to pump an extra 1 million barrels a day of crude and may not get all the way there until year-end. Saudi Energy Minister Khalid Al-Falih said they would do “whatever is necessary” to fulfill that promise, and his Russian counterpart, Alexander Novak, said additional capacity is there if needed. Yet neither promised specific volumes.
Both countries and several of their allies have increased production since June, but they’ve only partially filled the gap created by an economic collapse in Venezuela and renewed U.S. sanctions on Iran. The group’s compliance rate — the proportion of their 1.8 million barrel-aday output cuts achieved each month — was 129 percent in August compared with 152 percent in May. That leaves them about 500,000 barrels a day short of their June pledge.
With Trump taking to Twitter once again to demand OPEC to take action, ministers attending talks in the Algerian capital on Sunday are under pressure to bring down oil prices. Without a firm supply commitment, they may only add to speculation about their ability, or willingness, to do so.
“OPEC and non-OPEC haven’t been able to deliver 100 percent group compliance yet,” said Amrita Sen, chief oil analyst and cofounder of consultant Energy Aspects Ltd. “That will only get harder as Iranian exports and production start falling fast.”
Officials from the Organiza-
tion of Petroleum Exporting Countries and its allies, known as OPEC+, are meeting in Algiers to review output data and discuss the market. That’s no easy task in a world where supply disruptions are worsening just as the emerging market crisis and U.S.-China trade war cast doubt on the strength of demand.
“A more challenging environment is anticipated in the road ahead and some volatility seems to be returning to the market,” AlFalih said at the opening session of the meeting in Algiers. “It’s critical that we continue to foresee and anticipate changing market supply and demand balances and take proactive actions to avoid conditions that could make consumers uneasy and anxious.”
Both in public and behind closed doors, Saudi Arabia gave no specific commitment to tap its 1.5 million barrels a day of spare capacity to bring down prices. At a meeting on Saturday with fellow Gulf Arab ministers, Al-Falih indicated he saw no need to make big changes to output policy right now and said they should wait and see what happens before the next OPEC ministerial meeting in December, according to three delegates.
The group could hit its target of 100 percent compliance in two to three months, Al-Falih told reporters on Sunday.
Several ministers voiced similar sentiments. Russia’s Novak told reporters that his country has the capacity to increase production, but the amount of any additional supply will depend on the market.
“We still have a job to complete, which is going to the 100 percent,” said United Arab Emirates Energy Minister Suhail Al Mazrouei. His country has spare production capacity but won’t overuse it, and right now the market is in “good condition.”
Oil prices have climbed about 18 percent this year, and last week Brent crude rose above $80 a barrel, provoking the president to direct his first social-media barb against the cartel since July 4.
“We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!” Trump wrote on Twitter last week.
Trump was returning to a playbook that’s won him significant victories already this year — namely the dramatic policy Uturn in June and the pledge to pump an extra 1 million barrels a day.
Russia has seized on that promise, with recent data showing its production has jumped to a new post-Soviet record. Yet Saudi Arabia’s own output actually dropped in July amid signs it couldn’t find enough buyers. Suggestions of record production of near 11 million barrels a day didn’t materialize and the kingdom’s output has hovered near 10.4 million since June.
“Saudi Arabia is uncomfortably squeezed,” said Bob McNally, founder of consultants Rapidan Energy Group in Washington, adding that the kingdom had “limited spare capacity” to compensate for the loss of Iranian supplies.
Saudi Arabia Energy Minister Khalid al-Falih told reporters that participating countries have provided over the last three months “a lot of supply to offset decreases” in Iran, Venezuela and Mexico. “Markets are quite balanced today — there’s plenty of supply to meet any customer that needs it.”
Also on Sunday, OPEC released its World Oil Outlook 2040 report.
The cartel says that China and India will drive growth in energy demand through 2040 and that oil will continue to remain the biggest source of energy despite a global push for cleaner resources.
Oil demand is forecast to increase by 14.5 million barrels a day to a total of 111.7 million barrels in 2040, driven by an expanding middle class and economic growth in developing countries.
The U.S., which isn’t an OPEC member and has in recent years seen a renewed boom in shale oil, will continue to grow as a crude producer, peaking in the late 2020s. That suggests OPEC’s power to influence the market will be tempered by U.S. production for about another decade.