Saudis see need for major cut of oil supply amid fears of glut
LONDON/DUBAI Saudi Arabia said OPEC and its allies should reverse about half the increase in oil output they made earlier this year as fears of shortages are supplanted by concerns about oversupply and collapsing prices.
Producers need to cut about one million barrels a day from October production levels, Saudi Energy Minister Khalid Al-Falih said in Abu Dhabi on Monday. The kingdom will reduce shipments by about half that amount next month, making its second policy U-turn after a summer surge in prices was followed by a swift collapse into a bear market this month.
“This announcement of at least Saudi Arabia reducing probably will firm the price,” BP chief executive Bob Dudley said in a Bloomberg television interview. Oil rallied as much as 2.4 per cent in London and 1.8 per cent in New York.
The largest producer in the Organization of Petroleum Exporting Countries is once again taking the lead to address huge shifts in the market. In June, it persuaded fellow producers to end 18 months of production cuts and pump more crude in response to falling output in Venezuela and Iran and pressure over prices from U.S. President Donald Trump.
This time, Saudi Arabia is urging allies to focus on the risk of rising oil inventories and forecasts for massive growth in rival supplies next year including U.S. shale. It’s a concern shared by OPEC SecretaryGeneral Mohammad Barkindo, who said Monday that the market balance is under threat from surplus supply and dwindling demand.
“It is beginning to look alarming in the sense that the resurgence of non- OPEC supply — in particular shale oil from the United States — is putting a lot of pressure on this fragile equation,” Barkindo said in Abu Dhabi. On the demand side, “we’re beginning to see signs of deceleration in 2019. Now the result of that is projecting a buildup of stocks to the level we saw in 2014.”
RUSSIA, TRUMP RESIST MORE OUTPUT CUTS
Yet Saudi Arabia still has work to do persuading other major producers — notably Russia, the largest non-OPEC nation in the alliance — to agree to curbs.
“I would not want to focus purely on production cuts,” Russian Energy Minister Alexander Novak told Bloomberg television. “We have to wait and see how the market is unfolding.”
U.S. President Donald Trump said he didn’t want to see more output cuts. “Oil prices should be much lower based on supply!” the president tweeted.
A meeting between Novak, AlFalih and other producers on Sunday yielded no formal change in supply policy, but did acknowledge they may need “new strategies.” Venezuelan Energy Minister Manuel Quevedo told reporters it might be worth discussing cuts to address rising oil inventories. Oman’s Oil Minister Mohammed Al-Rumhy said “there is a consensus that there is an oversupply and we need to do something.”
OPEC and Russia added almost two million barrels a day to the market between May and October, according to data compiled by Bloomberg. While they were willing to take that action to ease prices, many countries need the value of a barrel to stay high enough to balance their budgets.
That’s now difficult for some members after oil collapsed into a bear market in New York last week, suffering its longest series of daily declines on record. “We are going to do everything we can to keep inventories and supply/demand fundamentals within a reasonably narrow band around balance,” AlFalih said in Abu Dhabi.