EMEA News
Saudis Contradict OPEC Sources Who Claim Crude Cutback Exit Strategy is Being Planned
Two sources from the Organization of the Petroleum Exporting Countries (OPEC), gave gravitas to earlier rumours by telling Reuters that the cartel has begun working on a strategy to exit its crude cutback initiatives, recently extended until the end of 2018.
But even though experts have predicted the exit could come at mid point of next year, OPEC's de facto leader, Saudi Arabia, says no such plans are in place.
The OPEC sources said the cartel's secretariat has been assigned to work on a plan with different options: "It's a continuity strategy, rather than exit," one of them stated, adding that it was too early to speculate what the plan would look like.
But as far as Khalid Al-Falih, energy minister for Saudi Arabia, is concerned, there is too much work to be done before even contemplating an end to the cutbacks: he told Bloomberg television that oil inventories won't be anywhere close to their desired levels by next June: "We never expected December and the first few months of 2018 to be the months where we would see a major draw on oil in general.
He added that "markets will always overreact to short-term events" and that he will wait until the second half of 2018 "to see where we are in terms of supply and demand...there is no intent to revisit what we've agreed on."
Al-Falih offered a variation of the same theme when he told Reuters that "As we said last month, we still have approximately 150 million barrels of overhang, and it is going to take the second half 2018 to draw that down.
"So I think it is premature to discuss any potential changes in our course, and the earliest opportunity to assess where the market is in a major way would be in June."
He also repeated his view that rising U.S. production, regarded with such trepidation by experts, will not slow "the momentum of rebalancing" on the back of healthy demand growth projections in 2018.
Al-Falih's take on the situation is shared by Alexander Novak, energy minister for Russia: he said, "Our task, above all, is the balance of the market and sustainable demand and supply balance; we are aiming at reaching this result, this could be achieved, if the things are going well ... during 2018."
Novak went on to state that detailed exit talks should commence only when markets approach rebalance: "The detailed parameters will be discussed by the time we approach the balance; there could be different time frames, depending on forecasts of supply and demand increase on the global markets.
"We have a common understanding on this issue, but I don't want to discuss hypothetical scenarios now."
The Saudis are predicting that as long as OPEC receives strong compliance for its cutbacks, oil prices will climb 12 percent next year, thus adding value to their IPO of Saudi Aramco; Iraq, Qatar, and Iran are also assuming higher prices in their 2018 budgets.
