Opec to stay the course as crude inventories remain high, Saudi Energy Minister says

The Saudi-Russian alliance refrained from speculation on extending the output restriction pact for the rest of the year

Saudi Arabia's energy minister Khalid Al Falih said an April meeting was "too soon" to talk about extending the supply curbs. Victor Besa / The National

Opec+, the alliance undertaking production cuts to rebalance the oil markets, will "stay the course” on restricting output as supply continued to remain high, according to Saudi Arabia’s Energy Minister.

Saudi-led Opec and producers outside the group, led by Russia, vowed to slash output by 1.2 million barrels per day for six months starting January. The measure was a reaction to the dramatic decline in oil prices, which peaked to a three-year high of $86.29 in October, only to fall to 30 per cent of the value the following month. Brent was trading up 0.15 per cent to $67.26 per barrel at 5:15 pm UAE time.

"As long as the levels of inventories are rising and we are far form normal levels, we will stay the course of guiding the market towards balance,” Khalid Al Falih said at the joint ministerial monitoring committee meeting in Baku, Azerbaijan, on Monday.

Rising supply from the United States, which pumped 12 million bpd in February, has led to a build-up in global inventory levels for crude.

However, Mr Al Falih declined to specify whether the alliance would extend the production curbs through to the end of the year.

"April is too soon to consider a cut extension,” he said.

Opec+ had initially scheduled to meet in the Austrian capital of Vienna in April for an "extraordinary" general meeting.

The joint ministerial monitoring committee which convened in the Azeri capital recommended cancellation of the planned meeting next month, with the next round of talks set for 25 and 26 of June.

"It seems there is a consensus toward the decision being made in June,” said Mr Al Falih.

The JMMC's next meeting is scheduled to take place in May in Jeddah, Saudi Arabia. Iraq, Kazakhstan, Nigeria and the UAE also joined as new members of the committee, while Oman dropped out.

The compliance with Opec+ cuts increased to 90 per cent in February, which is up from 83 per cent in January, the committee said.

Opec and allies have buckled under pressure from the US and rising production from the shale belt, with Saudi Arabia and the UAE shouldering much of the production cut.

The UAE’s energy minister Suhail Al Mazrouei had tweeted earlier in the month that the country would “exceed” its requirements, if necessary.

Opec’s battle plan comes amid the growing dominance of independent US shale producers in the oil markets, who have threatened the group’s traditional dominance in supply and demand.

An extension of production cuts into the second half of the year “was too early to tell,” according to Giovanni Staunovo, commodity analyst with Swiss bank UBS.

For Opec, extending the current pact well into the second half of the year would depend on a number of factors including demand, US supply growth, as well as the status of fragile producing states such as Libya, Venezuela and Iran, he added.

“There will be likely an extension, but not yet clear if production cuts would stay the same or would change,” said Mr Staunovo.

A number of factors will likely weigh on Opec’s decision to extend the pact through to the second half of the year at the next meeting in June.

President Trump is widely expected to scale back the waivers granted to Iran in November when the administration reviews them in May.

Loss of further Iranian supply could lead to more tightening in the markets, which have already seen Venezuelan barrels slip to just around a million in February from 1.3 million bpd last year.