OPEC-led cuts may be extended beyond March 2018

A TV camera is seen outside the headquarters of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, Austria, May 25, 2017. REUTERS/Leonhard Foeger
  • Saudi wants oil inventories back at 5-year average
  • Minister says OPEC, others keeping options open (Updates oil price, para 7)
  • Saudi determined to end oil glut, sees smooth exit for OPEC pact

By Rania El Gamal

RIYADH, Oct 24  – The world’s top oil exporter Saudi Arabia is determined to reduce inventories further through an OPEC-led deal to cut crude output and raised the prospect of prolonged restraint once the pact ends to prevent a build up in excess supplies.

Saudi Energy Minister Khalid al-Falih, speaking during an investment conference in Riyadh, said on Tuesday the focus remained on reducing the level of oil stocks in OECD industrialised countries to their five-year average.

The Organization of the Petroleum Exporting Countries, plus Russia and nine other producers, have cut oil output by about 1.8 million barrels per day (bpd) since January. The pact runs to March 2018, but they are considering extending it.

“We are very flexible, we are keeping our options open. We are determined to do whatever it takes to bring global inventories down to the normal level which we say is the five-year average,” Falih told Reuters.

The market has been concerned that, once the supply cut deal comes to an end, producers will ramp up supplies again, causing prices to fall. But Falih raised the prospect of continued output restraint to prevent this.

“When we get closer to that (five-year average) we will decide how we smoothly exit the current arrangement, maybe go to a different arrangement to keep supply and demand closely balanced so we don’t have a return to higher inventories.”

The oil price has recovered from below $30 a barrel at the start of 2016 to trade above $57 on Tuesday, and rose after Falih’s comments. Oil remains, however, at half its price in mid-2014.

Reuters reported last week, citing OPEC sources, that producers were leaning towards extending the deal for nine months, although any decision could be postponed until early next year depending on the market.

Falih did not comment on an extension but said the cuts had reduced the supply overhang in storage by half.

“We have reduced the inventories by over 180 million barrels and we still have about 160 million barrels according to numbers I have seen last,” he told Reuters.

“The intent is to keep our hands on the wheel between now and until we get to a balanced market and beyond, we are not going to do anything that is going to disrupt the path we are on,” he added.

Falih said oil investment had returned after the OPEC-led pact began at the start of the year and helped by a global economic recovery.

The minister said there was consensus to continue the cuts until targets were reached to balance the market but said shocks to the market by reducing more than needed should be avoided. (Reporting by Rania El Gamal; writing by Alex Lawler; editing by Jason Neely and Edmund Blair)

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Godwin Okafor is a financial journalist, Internet Social Entrepreneur and the Founder Naija247news Media Ltd He has over 16 experiences in journalism, which cuts across traditional and digital media. He started his journalism career in Business Day, Where he was a senior editorial graphic artist, before he left to start Naija247news, An Online Financial Newspaper in 2010. He has won series of awards and he is the chairman of Emmerich Resources Limited, the publisher of Naija247news.com and also sits on the board of Students In Business Awards, (SIBA).


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