Jeddah, Saudi Arabia — Key OPEC ministers are advocating for an extension to oil production cuts set to expire in June, pointing to rising global inventories, even in the face of tighter US sanctions on Iran and the summer peak demand season just ahead.
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Register NowUAE energy minister Suhail al-Mazrouei said Saturday that OPEC and its 10 non-OPEC allies, who committed in December to 1.2 million b/d in cuts for the first half of 2019, still need to tackle the inventory overhang.
"The job is not complete," he told reporters on arrival in Jeddah, Saudi Arabia, where he will attend a meeting of the OPEC/non-OPEC Joint Ministerial Monitoring Committee on Sunday. "We are still seeing some inventory build-ups. We need to attend to it. This is probably a continuation until we see the true balance in the market."
Asked whether OPEC needs to raise production to offset any expected losses from Iran due to tighter US sanctions, Mazrouei said OPEC and partners would act collectively if market fundamentals justify such action. But any decision on changing policy would be made at the OPEC/non-OPEC coalition's next full meeting, June 25-26 in Vienna, he added.
"We are looking at filling any gap from the whole group if there is a need to attend to any shortage in the market," Mazrouei said. "But we don't see it. We see inventories build up, so we need to attend to that first."
Saudi energy minister Khalid al-Falih made similar comments in an interview with Reuters published on Saturday, saying that he still saw no evidence of any supply squeeze, but added that OPEC would be "responsive to market needs."
OPEC's analysis arm on Tuesday reported that OECD oil inventories as of March stood 22.8 million barrels above the five-year average that OPEC has said it is targeting with its cuts.
The OPEC/non-OPEC coalition achieved 168% compliance with their committed cuts in April, delegates told S&P Global Platts on Saturday, giving the group some cushion to respond to supply outages without undoing a 1.2 million b/d production cut agreement set to run through June.
It was not immediately clear how the 168% compliance was calculated, since the deal excludes Iran and Venezuela, whose sanctions-impacted involuntary declines have contributed much of OPEC's fall in production, as well as Libya, which faces intense factional fighting that threatens much of its oil infrastructure.
Among just the 11 OPEC members with quotas, which had committed to 812,000 b/d in cuts, S&P Global Platts calculated April compliance to be 116%, as, led by Saudi Arabia, the countries reduced output by 940,000 b/d.
Delegates met late Friday and into the early Saturday morning hours in Jeddah, for a technical committee meeting to review market conditions, ahead of Sunday's JMMC meeting.
One source, who spoke to Platts on condition of anonymity, said much of the discussions were in favor of extending the production cut agreement beyond June. Those talks will continue with ministers holding one-on-one meetings throughout Saturday.
Paul Sankey, an analyst for Mizuho Securites, noted that Falih in April had said he wanted to see a drop in OECD oil inventories of some 70 million to 80 million barrels before considering reversing the OPEC/non-OPEC cuts.
Since then, however, stocks have built by about 30 million barrels, he said.
Falih may point to those inventory numbers in advocating to keep the production cut deal in place, Sankey said.
But given the geopolitical events of the past week, the Saudi minister may well try to keep the JMMC meeting a low-key affair.
The meeting, co-chaired by Falih and Russian counterpart Alexander Novak, will be attended by 16 countries, sources said, but notably not Iran, which Saudi Arabia has accused of being responsible for a drone attack Tuesday on the major East-West Pipeline that transports oil from the kingdom's eastern fields to ports on the Red Sea coast.
Iranian officials, who have accused Saudi Arabia and the UAE of working in concert with the US to undermine Iran's oil market share and destroy OPEC unity, have denied involvement.
Analysts said the Saudi and UAE ministers likely will speak cautiously at the JMMC, so as not to risk a further escalation with Iran that could roil oil markets. Tensions are already high after the US ended sanctions waivers that had allowed eight countries to continue buying Iranian oil until May 2, a move that could cause Iran's exports to crater.
"The US policy of maximum pressure on Iran means maximum pressure for oil markets, and the number of geopolitical events are only rising as we head into the high-demand summer season," said Joe McMonigle, an analyst with Hedgeye Capital.
The JMMC meeting Sunday is set to begin at 4 pm local time (1300 GMT), with a press conference scheduled for 9 pm (1800 GMT).
--Herman Wang, herman.wang@spglobal.com
--Dania Saadi,dania.el.saadi@spglobal.com
--Edited by Claudia Carpenter, claudia.carpenter@spglobal.com