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No significant inventory draw expected in Q1 2018, says Saudi's Falih

  • Commodity Oil

London — No significant oil inventory draws are expected in the next four months, Saudienergy minister Khalid al-Falih said Monday, meaning the global oil marketswill not reach balance.

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"Our projection is that inventories will not draw significantly in the nextfour months, just as we have seen in 2017," Falih told reporters at a pressconference in Riyadh following talks with his US counterpart, Rick Perry.

"It won't make a dent," he added.

The meeting came after Falih secured a nine-month extension to theOPEC/non-OPEC production cut deal in Vienna last Thursday, allowing the groupto continue drawing down inventories.

OPEC and non-OPEC producers still need to contend with supply growth,particularly from US shale producers, making a forecast of the exact rate ofstock draws difficult. There was still an estimated 150 million barrels ofcrude oil in storage that needed to be drained, Falih said.

The coalition had previously stated its aim of bringing OECD oil inventorylevels down to their five-year average. OPEC estimated commercial OECD oilinventories stood 140 million barrels above that benchmark as of October. NowFalih is pushing for an even more ambitious target of reducing them by 150million barrels.

How quickly this happens will be reviewed in June.

"We will wait to see it and will review in June, with the expectation, thatunless something unexpected happens, we will not alter our course in thesecond half of the year", Falih said.

"The outlook of when we will hit a balanced market will be clearer in June andwe will start thinking what do we do in 2019," he added.

This will mean looking at how OPEC and non-OPEC producers begin the process ofexiting their supply cuts. The exit strategy, still to be devised, willcertainly not include opening the taps to release 1.8 million barrels into themarket overnight.

"We will have frank discussions on how much actual available spare capacity dothey have and will be able to bring back. Some of them are experiencingdeclines, so it is fair to say some portion of that 1.8 million b/d isinvoluntary, so will not come back," Falih said.

Saudi Arabia itself has more than 2 million b/d of spare capacity. Havingbrokered the extension, from January Falih will take over the co-chairmanshipof the monitoring committee overseeing the deal, alongside Russian counterpartAlexander Novak, allowing the key pair to continue stewarding the cuts, evenafter he hands over the rotating OPEC presidency to UAE energy minister Suhailal-Mazrouei.