The divergence between oil supply and demand had been "markedly broken," and the market had moved into backwardation less than a year into OPEC's agreement with major non-OPEC producers to curtail oil output, Saudi oil minister Khalid al-Falih said Thursday.
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Inventories were steadily being reduced, and it was now clear supply is less than demand, Falih told delegates at the Russian Energy Week conference in Moscow.
"Floating inventories have almost vanished. The structure of the forward curve has flipped into backwardation," Falih said.
After saying he was no more optimistic on oil market fundamentals than he had been for the last two or three years, Falih added that OPEC would continue to look at supply, demand and inventories as the three "key controllables."
Demand had increased by 1.5 million b/d in 2017, and this would be sustained into 2018, Falih said, adding that this was a "good planning basis."
He also welcomed the contribution of US shale oil to global output, but warned that it was unreasonable to expect shale oil production to "somehow spring up at certain places and grow exponentially." This had been proven to be unrealistic, he said, and "we are well over the hump."
As the world's two largest oil producers, Saudi Arabia and Russia have led the 24-country OPEC/non-OPEC coalition in its 1.8 million b/d supply cut, which is scheduled to end in March.
Falih paid tribute to his Russian counterpart, Alexander Novak, for his role in "bringing the industry towards understanding that this is not a zero- sum game."
The agreement had breathed life back into OPEC, Falih said, with the group previously finding itself unable to cope with surging supplies and rising global inventories. The coalition members are due to meet on November 30 in Vienna to discuss the future of the deal.
Speaking on the same panel, Novak said inventories had halved in the first eight months of the deal, which became effective in January. They had previously been more than 340 million barrels over the five-year global average.
"In the first eight months, stock levels have halved. That contributes to the re-balancing of the market, and the return of investment we are observing," Novak said.
Compliance was also on the rise, with 100% adherence to the agreement, he said, adding that the new found trust among the coalition's disparate members would foster "future cooperation, the recovery of the market in order to make energy sustainable and safe."