EMEA News
Saudi Oil Minister Makes About Face, Now Says Oil Inventories Aren't Draining as Quickly as Thought
In a remarkable about face, Khalid al-Falih, energy minister for Saudi Arabia, on Tuesday admitted what a large number of analysts have already stated: that oil inventories aren't draining as quickly as expected despite the highly-touted production cutback initiative undertaken by the Organization of the Petroleum Exporting Countries (OPEC), now in its second month.
Al-Falih had previously gone on record numerous times as saying that fundamentals are improving and supply and demand is rebalancing, and last October he even went on record as stating with regards to U.S. shale growth that "I am happy to see more rigs coming back," pointing out that they play a vital role in helping to meet global demand growth.
As recently as December the minister, who previously entertained the idea of extending the six month OPEC reduction initiative, said no more additional cuts would be necessary because crude prices will rise "tangibly" this year and fall somewhere between $50 and $100 per barrel in coming years.
But speaking at the CERAWeek conference in Houston, al-Falih said good-naturedly, "The green shoots in the U.S. are growing too fast"; however, he stopped short of saying this automatically would mean an extension of the OPEC cuts, pointing out that the Saudis are undecided and a resolution will be made when ministers gather in May.
He also corroborated the worries of many experts that Saudi Arabia has limited patience in bearing the brunt of the cuts on behalf of nations that are either falling behind in their commitments or ignoring them entirely: he said the kingdom won't "indefinitely" maintain its curbs without help from others, remarking, that "Saudi Arabia will not allow itself to be used by others; we will not bear the burden of free riders."
But despite the defacto leader of the OPEC cuts admitting that all is far from well with the global market, some analysts believe good news could still occur: Tim Pickering, founder and chief investment officer of Auspice Capital Advisors Ltd., told Bloomberg, "If OPEC can stick to its cuts and shale output doesn't climb more than expected, oil can break to the upside.
"Seasonally, this is a time when inventories build so traders are being cautious. I think this should change in the next 30 to 60 days."
And al-Falih's talk at the CERAWeek conference wasn't all gloom and doom: he believes the market can absorb another 3 to 5 million barrels per day of production from the U.S. "over a number of years."
He also told CNBC, "It's not a matter of whether the U.S. should or shouldn't invest in its shale and contribute to the global market supply base: it's the pace at which it can supply."
And even though by all counts the global oil glut is expected to swell even more later this year, Jeff Currie, global head of commodities research at Goldman Sachs, predicts demand will outpace supply.
He told Bloomberg, "We have seen an upward revision to 2016 demand levels and also very positive macro data suggesting there's an upside risk in growth to demand in 2017."
Currie believes these positives far outweight the impact of negatives such as the current glut, and that "we're confident you're going to see those inventory draws."
If nothing else, al-Falih is proving to be a source of surprise for media pundits: in January he startled many experts by declaring that he is looking forward to working with U.S. president Donald Trump: "The positions that the U.S. and Saudi Arabia take in global energy are very important for global economic stability."
