Saudi-Russia reassurance on oil supply lacks guarantee
OPEC and its allies tried to reassure the market that more oil is coming but stopped short of committing to the urgent supply boost
London, UK – OPEC and its allies tried to reassure the market that more oil is coming but stopped short of committing to the urgent supply boost that some people are looking for - notably the US President.
The group is just halfway toward its June pledge to pump an extra 1mn barrels a day of crude, and may not get all the way there until year-end. Saudi Arabia’s 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 the meeting between the Organization of Petroleum Exporting Countries and its allies in the Algerian capital on Sunday ended without any member committing to a specific output increase, delegates said. They have increased production since June, but only partially filled the gap created by an economic col- lapse in Venezuela and renewed US sanctions on Iran.
With US President Donald Trump taking to Twitter once again to demand action, ministers are under pressure to bring down oil prices. The lack of a firm supply commitment may only add to speculation about their ability, or willingness, to do so.
‘OPEC and non-OPEC haven’t been able to deliver’ so far, said Amrita Sen, chief oil analyst and co-founder of consultant Energy Aspects Ltd. “That will only get harder as Iranian exports and production start falling fast.”
The group’s compliance rate - the proportion of their 1.8mn barrel a day output cuts achieved each month - was 129 per cent in August compared with 152 per cent in May. That leaves them about 500,000 barrels a day short of their June pledge.
They will stay the course with their June agreement to hit 100 per cent, H E Dr Mohammed bin Hamad al Rumhi, Oman’s Minister of Oil and Gas told reporters after the meeting. Yet it’s unclear whether they are able to do that, H E Rumhi said. Falih said it is possible, within two to three months.
Officials were 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 US-China trade war cast doubt on the strength of demand.
“We, Saudi Arabia, have not seen demand for an additional barrel we didn’t produce; we have topped our storage to the maximum because the demand hasn’t materialized,” Falih said. Still the group should be willing to ‘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 1.5mn barrels a day of spare capacity to bring down prices. At a meeting on Saturday with fellow Gulf Arab ministers, 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.
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 per cent,” 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 per cent this year and last week Brent crude rose above US$80 a barrel, provoking the president to direct his first socialmedia barb against the cartel since July 4. Trump was returning to a playbook that’s won him significant victories already this year - namely the dramatic policy U-turn in June and the pledge to pump an extra 1mn 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 11mn barrels a day didn’t materialize and the kingdom’s output has hovered near 10.4mn since June.