Top oil ministers in Houston have been reassuring the world that their output deal is working, although it wasn’t enough to stop the largest one-day oil price drop in a year amid fears of a persistent world oil glut.
Oil prices fell again yesterday following the previous day’s 5 per cent drop, with world benchmark North Sea Brent futures at US$51.87 late afternoon in the Arabian Gulf, down $1.24 on the day and the lowest since Opec reached its production deal at the end of November.
Saudi Arabia’s oil minister, speaking at an annual industry gathering in Houston earlier in the week, had talked of "cautious optimism" but subsequently couldn’t help but indicate his frustrations with the oversized burden he feels the kingdom has been bearing to balance the market.
"Saudi Arabia has been bearing a significant part of the load for the first three months of this agreement but we are not going to do it indefinitely," said Khalid Al Falih, the kingdom’s energy minister, in an interview on Wednesday with US television, while attending the Cera­Week confab in Houston.
The deal reached by Opec at the end of November called for cuts of 1.2 million barrels per day from the producer group’s October output levels, accompanied by a deal in December among a non-Opec group, led by Russia, to cut a combined 558,000 bpd.
While Opec’s compliance has been very high, that is due largely to Saudi Arabia cutting much deeper than it had pledged, saying last month that January output averaged 9.7 million bpd, compared to record levels as high as 10.6 million bpd before the deal.
Russia, on the other hand, which has pledged to cut 300,000 bpd from its post-Sov­iet era record output of 11.2 million bpd, has been slow to meet its commitment.
"They are getting there," said Mr Al Falih, but "slower than I would like".
He said he had met his Russian counterpart, Alexander Novak, in Houston. "He informed me that the first week of March has been very positive, they’ve added another 40,000 barrels [per day] of cuts to bring it to 160,000 bpd."
Mr Novak himself said in Houston that he expected Russian production cuts to reach 200,000 bpd this month and promised full compliance later on, but unless Russia was to cut very deeply in April, May and June it would come nowhere close to meeting the pledge to cut average production by 300,000 bpd over the six- month period through June.
The UAE has also lagged in its commitment, and its energy minister said that the country would cut deeply in March and April when it carries out oilfield maintenance, and indeed the Abu Dhabi National Oil Co (Adnoc) sent an email to customers last Monday telling them to expect between 3 per cent and 5 per cent less oil during those months.
Oil ministers, including Mr Al Falih and the UAE’s Suhail Al Mazrouei, who had previously been hesitant to talk of extending the output deal beyond June, were more open about the need for prolonged output restraint.
Mr Al Mazrouei said in Houston that a decision on extension will depend on three factors: whether oil in storage drops significantly, whether there has been a sustained oil price rise, and the effect on US shale oil production.
Wednesday’s oil price drop came after a report in the US showing a large build last week in crude inventories of 8.2 million, while US shale output has been rebounding for months.
"We will assess all this in May and how the market is responding," said Mr Al Falih. "If there is a need for an extension we will consider it."
An extension of the deal has been widely expected in the industry.
"Six months is too short a time to have any real effect, particularly when we consider the phase-in period for compliance," said Robin Mills, chief executive of Qamar Energy, a Dubai-based consultancy. But then, he added, "there is nothing wrong with a few market wobbles to keep the shale oil producers and financiers on their toes."

Source: The National