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Saudi Arabia confident of output cut extension

08 May 2017 07:46 (+01:00 GMT)
Saudi Arabia confident of output cut extension

Kuala Lumpur, 8 May (Argus) — Saudi Arabian oil minister Khalid al-Falih said today he is "rather confident" that the output cut agreement between Opec and non-Opec producers will be extended into the second half of this year, and possibly beyond.

Producers that agreed to supply cuts are so far exhibiting high levels of adherence to the commitments made in December, al-Falih said at the Asia Oil and Gas conference in Kuala Lumpur today.

"I would also like to emphasise what I have said in the past, that the producer coalition is determined to do whatever it takes to achieve our target of bringing stock levels back to the five-year average. Based on consultations I have had with participating members, I am rather confident the agreement will be extended into the second half of the year and possibly beyond," he said.

OECD inventories have been gradually declining since the middle of last year, with an estimated stock draw of 60mn bl since they peaked in July, al-Falih said.

"Despite lingering headwinds, the oil market continues to improve from the conditions we saw early last year, when oil inventories were at an all-time high and set to continue rising. The markets, however, have recently been impacted by a combination of low seasonal demand and refinery maintenance in the US, some growth in non-Opec supply, and the actions of financial players in the market. All this has slowed the impact of recent production cuts."

But al-Falih said he believed the worst was over amid indications that supply-demand balances are in deficit and the market is moving towards rebalancing. Markets should be healthier going forward, he said.

Al-Falih also expressed concern that the slowdown in oil and gas investments, driven in part by short-term oversupply and the unrealistic expectations of the rapid deployment of alternatives, could lead to energy shortages and supply security concerns. He said he did not anticipate that oil demand will peak anytime soon.

The prospect of the output cut agreement being extended was supported by Malaysia today. The country will maintain its commitment to reduce production if Opec and participating non-Opec producers agree to extend the output cut deal to the second half of the year, Malaysian state-owned oil firm Petronas' chief executive Zulkiflee Wan Arrifin said.

Malaysia has committed to a 20,000 b/d output cut, and will continue at this level if there is an extension of the agreement, he said.