Saudi oil cuts exceeds target and Kingdom may cut for longer

By Mahmoud Habboush, Anthony DiPaola, Sam Wilkin on 1/12/2017

ABU DHABI (Bloomberg) -- Saudi Arabia will consider renewing its pledge to cut crude output in six months and has already reduced production by more than its targeted level, Energy Minister Khalid Al-Falih said.

The world’s biggest oil exporter agreed to cut 486,000 bpd from Jan. 1 for six months as part of a global deal to reduce output to curb a supply glut. The caps on production, together with rising demand and natural decreases in output in some countries, will help balance the market and support prices, he said. Kuwait has also exceeded its targeted cut, according to that country’s oil minister.

“We have been moving toward a re-balanced market for some time—too slowly to my liking,” Al-Falih said Thursday in Abu Dhabi. “The pace of re-balancing will be accelerated due to the recent agreements within OPEC and with our party from outside” the Organization of Petroleum Exporting Countries. “We will consider renewing” the agreement after six months, he said.

Saudi Arabia is due to meet fellow OPEC members in June at their bi-annual meeting in Vienna to assess the market and the group’s production policy. OPEC states will also gather with major producers outside the group later this month in the Austrian capital to monitor their compliance with the production cuts, which aim at shoring up prices. Benchmark Brent crude was 37 cents higher at $55.56/bbl in London at 10:25 a.m. local time.

Oil Inventories

Al-Falih’s comments amplified remarks made earlier at the same event by OPEC Secretary-General Mohammad Barkindo, who said global oil inventories will start to fall by the second quarter of this year and that crude-producing countries will decide in May whether to extend their output cuts beyond the first half.

Global macroeconomic numbers have responded “positively” to the agreement between OPEC and non-OPEC producers to pare output, Barkindo said. “We have our target in accelerating those draw-downs to bring them closer to the five-year level—that is our target,” he told reporters. The Organization of Petroleum Exporting Countries isn’t targeting a specific price for crude, he said.

The cuts began on Jan. 1 and are to stay in effect through June. Oil markets should be in balance in six months, and it’s premature to decide whether additional cuts will be needed, United Arab Emirates Energy Minister Suhail Al Mazrouei said at the Atlantic Council Global Energy Forum in Abu Dhabi. Countries with a naturally declining output of oil are contributing to a decrease in global production, he said.

Kuwait Cuts

Kuwait has cut 133,000 bpd of oil output and is currently producing 2.7 MMbpd, Oil Minister Essam Al-Marzouk said at the Abu Dhabi conference. The production cut will be reflected in Kuwait’s crude exports, he said. Kuwait had agreed to cut 131,000 bopd in the global deal to reduce output.

Total SA CEO Patrick Pouyanne, speaking at the same event, said he expects that the decline in oil inventories will take two years.

Barkindo expressed confidence in the level of commitment from all countries participating in the agreement to decrease supply. “I met with the Iraqi minister this morning,” he said. “He has reassured me Iraq will implement its part of the deal fully and on a timely basis.”

A committee of OPEC and non-OPEC producers responsible for monitoring compliance with the cuts will hold its first meeting on Jan. 22 in Vienna, Barkindo said. The committee, with Kuwait as chairman, also includes Algeria, Venezuela, Russia and Oman.

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