Supply risks abound from Iran to Venezuela to Libya and the peak summer oil demand season is just around the corner, but Saudi energy minister Khalid al-Falih still sees a world awash in crude. In case anyone doubted Saudi Arabia’s resolve to maintain price-boosting production discipline, when many forecasters are warning of a potential supply squeeze ahead and US President Donald Trump is pressuring the kingdom to open the taps, Falih could not have been more clear Sunday.
“We see inventories rising, we see plentiful supplies,” the minister told reporters in Jeddah, Saudi Arabia, where an OPEC/non-OPEC monitoring committee that he co-chairs with Russian counterpart Alexander Novak met to debate how much to pump going forward. “All in all we should be in a comfortable situation in the weeks to months to come,” Falih added.
So comfortable, in fact, that he said the OPEC kingpin will keep its crude production in May and June at around 9.7 million to 9.8 million b/d. That is more than half a million b/d below its quota under an OPEC/non-OPEC supply accord of 10.31 million b/d. Saudi crude exports would not surpass 7 million b/d in either month, he added.
Even if the deal is not extended beyond its June expiry when the producer coalition meets in five weeks in Vienna, the minister declared that Saudi Arabia will still hold to its quota for at least an extra month — boldly risking its own market share in the name of price support.
“We are not going to deviate from our target for July,” Falih said. “I hope my other colleagues will do the same.”
The prospects of rolling over the production cuts are not yet clear. Several ministers at the monitoring committee meeting said they supported in principle a continuation of the supply agreement, but the group as a whole was not ready to be locked into a commitment just yet.
Changing market dynamics may necessitate some kind of amendment to the deal, such as loosening some quotas and adjusting the level of cuts, some delegates said.
Novak said geopolitical uncertainties, including the US enforcement of sanctions on Iran and Venezuela, complicate the OPEC/non-OPEC coalition’s ability to stabilize the oil market, while the demand outlook is clouded by trade disputes and slowing economic growth.
“We need to remain flexible,” he said after the committee meeting. “We are trying to base that decision on what’s best for the market and do the right thing to keep it balanced.”