Singapore — OPEC is ready to commit to an extension of its oil production cuts beyond their June expiry, Saudi energy minister Khalid al-Falih said Friday, but non-OPEC partners, led by Russia, could see their quotas eased.
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"I don't think I'd be giving away a secret if I said that on the OPEC side, the rollover is almost in the bag," Falih said at the St. Petersburg International Economic Forum, after meeting with Russian counterpart Alexander Novak. "The question is to calibrate with non-OPEC if there needs to be an adjustment."
OPEC and 10 non-OPEC allies, led by Russia, agreed in December 2018 to cut a combined 1.2 million b/d in supplies through June to drain a glut of oil inventories and bolster prices, which had slumped majorly in the fourth quarter of 2018. Since then, fears of a global economic chill due to US-China trade tensions have overshadowed concerns of a supply risk due to US sanctions on Iran and Venezuela, with front-month ICE Brent futures dropping some 20% in the last four weeks.
"I don't think there will be any need to deepen the cut, but whether we need to scale it back a bit will depend on what happens in Iran, Venezuela and other countries," Falih said. "I'm hoping that it will be an easy decision and we will roll over [the cuts], but if not we will be flexible."
Saudi Arabia itself has cut its own production to 9.65 million b/d in May, the minister said, far below its quota of 10.31 million b/d, to demonstrate its commitment to rebalancing the market.
Russia, the largest non-OPEC producer in the coalition, pumped 11.11 million b/d in May, according to ministry data, compared with its quota of 11.19 million b/d under the deal.
Novak said Russia saw the need "to take coordinated actions" with OPEC to stabilize the market, but did not say what level of cuts he saw as appropriate. Both he and Falih said recent price volatility was driven by market sentiment.
"We see that the uncertainty factor has strengthened, even though the stocks reached normal levels," Novak said. "It is not fundamentals, but news that is impacting markets."
Falih added that oil prices were being "driven today by factors that we can't control."
The OPEC/non-OPEC coalition has yet to decide on the date of its next meeting in Vienna. Originally scheduled for June 25-26, Russia requested a date change to July 3-4, to avoid a conflict with the G20 summit in Japan. However several members, notably Iran, Algeria and Kazakhstan, have said they are opposed to moving the meeting.
Earlier at the St. Petersburg forum, Falih said Saudi Arabia would be able to sustain low prices "for longer than anybody else," even as he called for an extension to the supply cuts.
"We don't have a specific price target, but do have specific objective to ensure that oil markets are balanced," he said, adding that rebalancing global oil inventories that had built over the last year were "driving conversations with our colleagues for 2019 and 2020."
Falih's comments came a day after Russian President Vladimir Putin revealed a split between Russia and OPEC over what was a "fair" oil price. Putin said that Russia can do just fine with a range of $60-$65/b, given that its budget is built on a $40/b price assumption, while Saudi Arabia has a less diversified economy and a budget based on higher prices.
The International Monetary Fund estimates Saudi Arabia's fiscal breakeven oil price this year at $85.40/b, with the average for OPEC 's Middle Eastern members at $82.40/b.
Falih said the price situation would be much worse if the OPEC/non-OPEC deal to cut production had not been in place and that prices at around $60/b were not high enough to give companies confidence to invest.
"For us, the alternative of letting the market go the way it did in 2015 is frankly, unacceptable," Falih said.
He added that discussions will continue on exact volumes and distribution under the deal.
"I'm confident that when we do meet in a few weeks we'll be able to come to the right decision. After that we can always change. If we need to adjust it in the second-half we're always able to do that," he said.
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