KUALA LUMPUR: Saudi Arabia’s oil minister said on Monday that oil producers would “do whatever it takes” to rebalance the market and that he expected a global deal on cutting crude output to be extended to the end of 2017 or possibly longer.
The Organisation of the Petroleum Exporting Countries, of which Saudi Arabia is the de-facto leader, and other producers including Russia pledged to cut output by 1.8 million barrels per day (bpd) in the first half of the year to lift oil prices.
But global inventories remain high, pulling crude back below US$50 per barrel and putting pressure on OPEC to extend the cuts to the rest of the year.
“Based on consultations that I’ve had with participating members, I am confident the agreement will be extended into the second half of the year and possibly beyond,” Saudi Oil Minister Khalid al-Falih said at an industry event in Kuala Lumpur.
“The producer coalition is determined to do whatever it takes to achieve our target of bringing stock levels back to the five-year average,” he said.
Falih said recent price falls had been caused by seasonal low demand and refinery maintenance, as well as by non-OPEC production growth, especially in the United States.
US oil production has gained more than 10% since mid-2016 to 9.3 million bpd, close to the levels of top producers Russia and Saudi Arabia.
Despite this, Falih said markets had improved from last year’s lows, when crude prices fell below US$30 per barrel.
“I believe the worst is now behind us with multiple leading indicators showing that supply-demand balances are in deficit and the market is moving towards rebalancing,” he said.
“We should expect healthier markets going forward.”
He said he expected global oil demand to grow at a rate close to last year. In China, oil demand growth should match last year’s due to a robust transport sector, while India should record healthy growth, he said.
OPEC and industry sources said there had been discussions about extending curbs until the end of the first quarter 2018, when crude demand is seasonally at its weakest.
The chairman of energy consultancy FGE Fereidun Fesharaki said: “They (OPEC) are looking at (extending) for nine to 12 months. Six months is not enough as we’ll still be well above five years average of stocks.”
Asia drives long term growth
Falih said almost all of the expected oil demand growth in the next 25 years was likely to come from Asia as the region’s population grows, with countries such as Vietnam and the Philippines rising into the ranks of top 20 global economies.
Asia would also account for nearly two-thirds of global gas demand by that time, he said.
Global investments in exploration and production have also fallen behind, potentially creating a big supply-demand gap in the next few years, he said.
“Conservative estimates predict that we will need to offset 20 million barrels per day in combined demand growth and natural decline over the next five years,” Falih said.
“That is why I fear … we are heading into a future of supply-demand imbalances.”
To help meet this demand, state oil company Saudi Aramco will invest US$7 billion in a refinery-petrochemical project with Malaysia’s Petronas.
Also, Saudi Aramco’s project with Indonesia’s Pertamina to expand the Cilacap refinery will enter front-end engineering design in the second half of this year, Falih said.
Falih shrugged off talk that the rise of alternative energy could reduce fossil fuel consumption, saying renewables still faced hurdles such as affordability.