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Saudi energy minister says oil producers need to cooperate, even without OPEC

Abu Dhabi — The global oil market still needs the guiding hand of cooperating producers, Saudi Arabia's energy minister said Sunday, even as a kingdom-endowed think tank studies a break-up of OPEC.

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"I have the conviction -- and I think I represent the leadership of Saudi Arabia -- that the world of oil needs responsible producers to act responsibly and balance supply and demand," Khalid al-Falih said. "Otherwise the volatility between supply and demand would be so extreme it would be detrimental to the interests of producers and consumers, therefore hurting the global economy."

The King Abdullah Petroleum Studies and Research Center in Riyadh is researching the implications of an OPEC dissolution, as the 58-year-old bloc faces political and market pressures.

Saudi Arabia was a founding member of OPEC and, as its largest producer, serves as its de facto leader. It has touted the organization's role in boosting the global profile and political clout of its member oil producers.

But the kingdom appears to be reassessing its role within OPEC and the wider market, over concerns of peak demand and bloc's waning market share.

OPEC in recent months has been wracked with internal disputes, as Saudi Arabia's longstanding geopolitical rival Iran has accused the kingdom of being a pawn for the US by raising its production at the behest of US President Donald Trump to offset any Iranian losses due to re-impose sanctions.

Trump has also often accused OPEC of withholding production to keep oil prices high, and the US Congress is debating a so-called NOPEC bill that would allow the US to sue the organization under antitrust laws.

An OPEC/non-OPEC monitoring committee co-chaired by Falih met Sunday and warned that production cuts may be needed in 2019 to avoid a market glut caused by rising supplies and tepid economic growth.

Falih, speaking after the meeting, said the study was still in progress and that he would not pre-judge the findings.

"Think tanks like to think, we don't discourage them from thinking," he said. "Whatever they are thinking, let them do the study. We believe that any professional study by them will show that the combination of cooperation and mitigating extreme volatility will be the best for the market."

Adam Sieminski, KAPSARC's president and a former head of the US Energy Information Administration, told S&P Global Platts last week the study was not commissioned by the government, and that he does not know what it intends to do with the findings.

KAPSARC, endowed by the late King Abdullah and chaired by Falih, says it is a "non-profit institution for independent research into global energy economics."

"We are now examining oil market behavior in scenarios that include the absence of spare capacity, and when there is no residual supplier," Sieminski said. "Developments such as the ones we are investigating would have implications for oil prices and production levels across the globe, not just in OPEC."

Falih said whatever the study's results, Saudi Arabia would continue to act as the global market's swing producer, adjusting its output levels as demand dictates. The kingdom holds the bulk of the world's spare capacity, claiming it can produce up to 12 million b/d at will.

Current Saudi production has risen to about 10.7 million b/d, though Falih said that customer demand for Saudi crude in December was down about 500,000 b/d from November.

"There is no change in Saudi policy and I believe we have always showed leadership," Falih said. "We did it when we needed cuts and we did it even more deliberately when the market needed production. We will continue to play that role. Unfortunately, it means that we swing both ways."

--Herman Wang, herman.wang@spglobal.com

--Edited by Robert Perkins, robert.perkins@spglobal.com