Saudi Arabia’s oil minister Khalid Al-Falih has made it clear that the times of OPEC cutting production to stabilize oil prices without the contribution of the non-OPEC nations are gone.
Speaking at the CERAWeek conference organized by IHS Markit, Al-Falih expressed optimism about the market fundamentals improvement, boosted by the recent OPEC agreement to cut production, an initiative later joined by some non-Opec nations, most notably Russia.
Al-Falih said that on many occasions in the past, non-OPEC producers have “simply reaped the benefits of OPEC supply reductions.”
“But this time around, we made it clear that we will not bear the burden of “free rides,” and both groups are reinforcing one another through voluntary management of their production,” he said.
To remind, the agreement among OPEC and non-OPEC nations to cut production by 1.8 million barrels per day (bpd) was reached back in late 2016, with the aim to stabilize oil prices which had at one point last year dropped to below $30 a barrel. The agreement became effective on January 1 and runs until July 2017.
After he said there would be no more “free rides,” Al-Falih added that with regards to the production cut deal, Saudi Arabia has slashed its production to below ”the psychologically significant 10 million barrel-per-day mark”—which is well below our maximum production capacity.
He said it was a matter of monitoring the markets and conformance of participants, “and depending upon our assessment of the first half of the year, we will decide with our partners what to do for the second half.”
Al-Falih then said the agreements reached have made him optimistic about the global market outlook in the weeks and months ahead.
However, he immediately warned that his optimism “should not tip investors into “irrational exuberance” or wishful thinking that OPEC or the Kingdom will underwrite the investments of others at our own expense, much to the laughter of the audience present in the Ballroom of the Hilton Americas in Houston, where the event is being held this week.
In other words, Al-Falih said, we should not get ahead of the market as informed by our recent experience.
By Bartolomej Tomić, Senior Editor, Offshore Energy Today