Muscat — Far from breaking up, OPEC and its allies said Sunday they will look to prolong their partnership even after their production cuts have rebalanced the oil market.
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Ministers came to a monitoring committee meeting in Oman with a message: continued stewardship of supply into 2019 and beyond is needed to give the industry a smoother market to invest to meet future demand. This came against rife speculation that the coalition could soon discuss an early exit from their cut agreement, which runs through the end of this year.
While any longer term deal may not translate into an indefinite rollover of the cuts, the comments of OPEC Secretary General Mohammed Barkindo back in May 2017 that "we do not expect a divorce in this marriage" seem to be coming true.
"We need to see the confidence level of investors within the companies and financial community improving about the long-term prospects of the market, and that is why my guidance to my colleagues is that we should not limit our efforts to 2018," Saudi Energy Minister Khalid al-Falih said, just before he chaired a monitoring committee meeting in Oman.
"It does not necessarily mean that sticking barrel by barrel to the same limits or caps or targets of production country by country that we signed up to in 2016 but assuring stakeholders, investors, consumers and the global communities that this is something that is here to stay," he added.
Russian Energy Minister Alexander Novak, referencing a bilateral agreement he signed with Falih at the G20 meeting in August 2016 to cooperate on oil market monitoring and management, said his country sees the benefit of continued engagement with Saudi Arabia and OPEC.
No exact framework has been established for such dialogue, though both sides are willing to be nimble to adjust to changes in the market, Novak said in a press briefing.
"We've discussed this with OPEC, and we believe there is benefit to everyone in continuing dialogue and interactions," he said. "We believe that it can stay in consultations or in a different framework which will benefit all the consumers and the market."
Omani minister Mohammed al-Rumhy agreed on the need to continue cooperation but said those discussions would be held nearer to the deal's expiry, perhaps in November.
Such an extension of the agreement could involve freezing production at prescribed levels, as was discussed in talks that collapsed in Doha in 2016, he said.
"I'm in favor of having another kind of agreement," Rumhy told reporters. "I remember a few years ago we were talking about a freeze. These are the ideas we will be talking about in November."
NO TALKS ABOUT EXIT
In the meantime, OPEC and its 10 non-OPEC partners should remain committed to their cuts through the end of the year, ministers on the monitoring committee said, given that the oil market is entering the typical low-demand season with refinery maintenances scheduled.
The International Energy Agency has projected 2018 as a year in which oil stocks will build, with growth in non-OPEC supplies, particularly from US shale, more than offsetting the OPEC/non-OPEC cuts, Falih noted.
"If that materializes, we not only have to stay the course for 2018, but we have to consider rolling it into 2019," Falih said." If the picture changes, we will adjust accordingly -- hope for the best but be prepared to deal with the adverse situation of slow rebalancing."
The deal calls on OPEC and its 10 non-OPEC partners led by Russia to cut some 1.8 million b/d in supplies from October 2016 levels.
The cuts have been largely successful in drawing down inventories, and prices have risen to near three-year highs in recent weeks, prompting market chatter that the deal may be ended prematurely.
Ministers at the monitoring committee meeting rejected that notion and said there was no discussion of any exit or adjustments to the cuts in their meeting, given that inventories remain bloated and the demand picture is uncertain.
Nor have there been any discussions between ministers on the sidelines on such matters, they said.
"We still have more than 100 million barrels [of oil inventories] to remove, so prior to doing that let's not jump the gun," UAE Energy Minister Suhail al-Mazrouei said.
Novak added: "Price is not the only factor when looking at exit from the deal. We will look at the situation on the market. We don't want some specific factors to become indicators. We are saying that there needs to be a full recovery of the market."
While they were keeping a mindful eye on US shale producers, ministers said they remain largely unconcerned with their impact on the market.
The IEA said Friday that US oil output was poised for "explosive growth" this year given the recent price rally, but Falih dismissed such fears, saying global demand for crude would soak up any additional shale supplies. Furthermore, declines in Venezuela, Mexico and Alaska would mitigate any growth in US production, he said.
"There will be constraints on shale related to geology [and] infrastructure," Falih said. "I'm not saying shale will not grow. Shale will grow but I think it is a big market and there will be offsetting factors like growth in demand.
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