Saudi Arabia: No Need to Extend OPEC Agreement Beyond Six Months

Khalid Al-Falih, the Saudi Minister of Oil, stated that considering the commitment to production cuts and the forecast for increased global demand, the Organization of the Petroleum Exporting Countries (OPEC) likely does not need to extend its oil production cut agreement with other producing countries. According to Bloomberg, Al-Falih said on Monday, January 16, in Abu Dhabi during a conference that market balance should be established by the end of the first half of this year. He noted that demand will increase in the summer, and OPEC wants to ensure that supply to the market is in favorable conditions. He stated, 'Given the observed level of compliance and the demand forecast, we do not see a need in this regard. The market balance process, which began slowly in 2016, will peak in the middle of the year. Of course, there are many variables from now until June that we will evaluate at that time.' In May, Saudi Arabia and other OPEC member countries are set to meet in Vienna to assess the market and production policy. OPEC members will also gather with other major non-member countries later this month in Vienna to review compliance with the production cut program aimed at reducing inventories and increasing prices. Today, Brent crude oil traded at $55.35 per barrel, down 10 cents. OPEC's decision on November 30 to cut production reversed the organization's two-year policy that allowed members to produce as much as possible to maximize their sales, which had led to market saturation. OPEC, along with 11 non-member producing countries including Russia, is seeking to reduce daily supply by 1.8 million barrels. The production cuts began on January 1 and will continue until June. According to the Saudi oil minister, all participants have expressed their readiness to extend this period if necessary. However, there likely will not be a need to continue the plan. Demand will increase in the summer. 'We do not want to create a shortage in the market, so the extension of the plan will only be done if necessary.' Al-Falih stated that two years of 'market turmoil' led to the production cut agreement. Reduced investments and profits made joint action by OPEC member and non-member producers necessary. He is confident in the success of the plan and mentioned that some countries have reduced production more than their commitments, and when global strategic oil inventories return to the average of the past five years, OPEC will stop the continuation of the plan. Four days ago, Al-Falih also stated that Saudi Arabia has reduced its daily production to less than 10 million barrels, which is below the targeted amount and is currently the lowest production level in the past 22 months. Saudi Arabia, the world's largest oil exporter, has agreed to reduce its daily production by 486,000 barrels to reach 10 million and 58 thousand barrels. Al-Falih said, 'We are firmly committed to our obligations and will keep production at the set ceiling, or even below it.'