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Al-Falih: Oil output cuts may need to continue

Energy Minister Khalid Al-Falih with Qatar Energy Minister Mohammed bin Saleh Al-Sada and UAE Energy Minister Suhail Al-Mazrouei at an oil conference in Abu Dhabi. (AFP)
ABU DHABI: Energy Minister Khalid Al-Falih on Thursday suggested that production cuts agreed to by members of the Organization of Petroleum Exporting Countries (OPEC) and countries outside of the group may need to continue to help shore up crude oil prices.

The comments come as the price per barrel stand above $50 and increases in US shale oil production threaten to keep them low.
“There is an initial agreement but it has not been communicated to all the countries yet that we might be forced to extend in order to reach our goal,” Al-Falih said in a speech at an oil conference in Abu Dhabi.
OPEC agreed in late November to cut its production by 1.2 million barrels a day for six months, its first cut since 2008. Nearly a dozen other countries including Russia pledged in December to cut an additional 558,000 barrels a day.
OPEC is keen that non-member producers play their promised part in supporting the group’s efforts to lift prices, which have recovered to $53 a barrel from lows last year below $30.
OPEC and non-OPEC meet on May 25 to discuss extending the curbs that total 1.8 million barrels daily, two-thirds of that from OPEC.
OPEC sources said an internal assessment was that if they failed to extend the agreement, oil could slide back to $30-$40 a barrel.
Significant wild cards remain, however. President Donald Trump has pledged to free up more oil drilling in the US. The global economy remains weak as well. Meanwhile, shale oil production has started growing again in the US while Iran rushes to produce as much as it can to make up for years of economic sanctions it suffered over its contested nuclear program.
Talking about shale, UAE Energy Minister Suhail Al-Mazroui said producers involved in the cut made the decision “because we care about the balance in the market.”
He said: “This sacrifice cannot be taken as a sacrifice where someone else can benefit 100 percent.”
Kuwait’s Oil Minister Essam Al-Marzouq said he expected the output cut agreement to be extended. “Russia is on board preliminarily ... Compliance from Russia is very good,” Al-Marzouq said.
OPEC Secretary-General Mohammed Barkindo, noting that Al-Marzouq chairs a committee that measures compliance with the cuts, said: “It is significant that the Kuwaiti minister has come out in public and said this.”

Inventories still high
Al-Falih said his main concern was to reduce global oil inventories, calling that “the main indicator for the success of the initiative.”
While inventories held at sea and in producer countries have dropped, they remain stubbornly high in consumer regions, particularly in Asia and the US.
Oil prices were largely flat on Thursday. Brent futures were at $52.93 barrel at 1345 GMT, unchanged from their last close. US crude futures were down 9 cents at $50.50 a barrel.
Both benchmarks had traded more than 50 cents higher earlier in the day, but gains eased at the start of US trading hours.
“The US market perhaps does not believe in the oil market balance that OPEC would have us believe,” said Hans van Cleef, senior energy economist with ABN AMRO.

The International Energy Agency said last week that inventories in industrialized countries were still 10 percent above the five-year average, a key gauge for OPEC.

OPEC seems to be encouraged by the contribution of non-OPEC producers to the output cuts.
Al-Marzouq said there was a “noticeable increase in compliance from non-OPEC.” Joint compliance among OPEC and non-OPEC in March was above 90 percent, he said.
Russia has not yet publicly committed to prolonging its curbs, although Energy Minister Alexander Novak said this month that Moscow would start consultations with producing companies about the possibility of doing so.
Al-Marzouq said another African nation, which he did not identify, had expressed interest in joining the 24-country effort.
One hold-out for an extended deal may be Iraq. Baghdad might seek to be exempt and ask to boost its own output, said the leader of the nation’s ruling coalition, Ammar Al-Hakim.
Speaking in Cairo, Al-Hakim cautioned that Baghdad could ask to be exempted from taking part in the supply curbs as the OPEC member country needed its oil income to fight Daesh.
“Given these sensitive circumstances, it is the right of Iraq to hope for an exemption by the other OPEC member states and have an opportunity to increase its production,” Al-Hakim, an influential cleric, said in an interview this week.
“But we are with the principle of reducing the overall OPEC supply to lift prices.”
Iran does not look likely to become an obstacle. The current deal granted Tehran permission to lift output, hit by Western sanctions that ended just over a year ago.
“Iran is not an issue. We know they cannot raise their production much more,” an OPEC source said.

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