MUSCAT: Global oil producers are in agreement that they should continue cooperating on production after their deal on supply cuts expires at the end of this year, Saudi Arabia’s Energy Minister Khalid al-Falih said on Sunday.
It was the first time Saudi Arabia, the world’s top oil exporter, had publicly stated that Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC producers would keep cooperating after 2018.
The exact mechanism for cooperation next year has not yet been decided, Falih said, but if oil inventories increase in 2018 as some in the market expect, producers might have to consider rolling the supply cut deal into next year.
“There is a readiness to continue cooperation beyond 2018… The mechanism hasn’t been determined yet, but there is a consensus to continue,” Falih said after a meeting of the joint ministerial committee which oversees implementation of the cuts.
The committee comprises Saudi Arabia, Kuwait, Venezuela and Algeria, plus non-OPEC producers Russia and Oman. The United Arab Emirates was also present on Sunday as it holds the presidency of OPEC.
Before the meeting, Falih said extending the cooperation framework beyond 2018 wouldn’t necessarily mean sticking to countries’ current production targets.
The agreement was launched last January and Saudi Arabia has accounted for by far the largest share of the output cuts.
Falih said a deal on production levels after 2018 would be about “assuring stakeholders, investors, consumers and the global community that this is something that is here to stay. And we are going to work together.”
Kuwait’s Oil minister Bakheet al-Rashidi said Sunday’s meeting focused on compliance with the current agreement on output cuts, and discussion of the deal’s future was expected to occur in June, when OPEC and other producers led by Russia are next scheduled to meet on oil policy.
Oman’s Oil Minister Mohammed bin Hamad al-Rumhi said producers would discuss in November whether to renew their supply agreement or enter a new type of agreement. Oman is in favour of a new deal, he said without elaborating.
Falih said the global economy had strengthened while the supply cuts had shrunk oil inventories around the world. As a result, the oil market was on course to rebalance towards the end of 2018 or in 2019, he said.
But he stressed that producers still had a lot of hard work ahead to restore the market to health, and it was uncertain whether the current pace of the drawdown in oil inventories would continue in months to come.
“We are entering a low demand period seasonally, and we have to let that pass and see how inventories look in the second half before we consider any alteration” to current policy, he said.
Falih and energy ministers from the UAE and Oman noted that the rise of the Brent oil price to three-year highs around $70 a barrel in recent weeks could cause an increase in the supply of shale oil from the United States.
But both Falih and UAE minister Suhail al-Mazroui said they did not think the rise in prices would hurt global demand for oil.
OPEC has a self-imposed goal of bringing oil inventories in industrialized countries down to their five-year average. But Falih said that identifying the exact target for inventories had yet to be discussed by producers, and it might only become clearer in June.
“I don’t think that we are going to reach our target anytime soon, certainly not in the first half,” he told reporters before Sunday’s meeting.
”I think we have to identify more clearly what is the normal level because five-year average – which five-year? The longer we wait to reach that target, the more the running five-year average increases and represents bloated inventories.
“I think one of the things we need to define in the next few months before we meet in June, is what is the real target more precisely, and that is work that still needs to be done, and we still need to reach a consensus.”
Falih said the overall compliance of OPEC and non-OPEC nations with the production cuts was 129 percent in December. The next meeting of the joint ministerial committee overseeing implementation of the cuts will be held in April in Saudi Arabia, an OPEC statement said.