While "sympathetic" to the consumer impact of the recent oil price rise, Saudi Arabia remains concerned that upstream investments had yet to reach a "reasonable level," Saudi energy minister Khalid al-Falih said Wednesday, shrugging off any suggestion of an early end to OPEC's output cuts.
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"Since 2013-2014 we have seen a rapid drop off in investment which we believe will bite the consumers and the industry as a whole," Falih said at a media briefing at the International Energy Forum. "We are trying to signal to the market, to the investors, to the financial community, to international oil companies to put investments back into the upstream."
But he also sought to reassure the market that OPEC, which along with 10 non-OPEC allies led by Russia is in the midst of a 1.8 million b/d production cut agreement, would not allow prices to spike or crater through its actions. The goal is to create market stability so that upstream investment can occur to meet the projected 1.5 million b/d of increased demand in the foreseeable future, Falih said.
"What we are trying to do is not move the prices to any unreasonable level," he said. "What we are trying to do is make sure that supply and demand are closely matched so that markets are not worried about gluts and oversupply and continued investment will flow into the industry."
To that end, Saudi Arabia and Russia are leading discussions on extending the OPEC/non-OPEC coalition's alliance "to monitor the market and take action where necessary to maintain stability, which is good news for producers and consumers," Falih said.
He added: "We will not sit by and let another glut resurface in the coming years and bring the market through the roller coaster that we have seen before."
The production cut agreement, aimed at reducing OECD commercial inventories to the five-year average, runs through the end of 2018. Falih said that while the market rebalancing is close, OPEC and its allies are not ready to declare victory.
"Until we see we are coming to a reasonable level of investmentwe will continue to be concerned," he said. "In terms of fundamentals we have come a long way, the glut has been cleared, the floating storage has largely disappeared and inventories have come back closer to their five-year average."
He attributed the investment gap not just to market conditions, "but also due to an investment climate shaped by adverse sentiment and misleading signals from policy makers and some financial institutions voicing negative views."