Falih Says No Need for Extending Oil Output Cut Deal

OPEC probably will not need to extend a deal it reached with other crude producers to cut output, given the level of their compliance with the reductions and the outlook for an increase in global demand, Saudi Energy Minister Khalid al-Falih said.

Rebalancing of the oil market should take place by the end of the first half of the year, Al-Falih told reporters during an energy event in the United Arab Emirates capital of Abu Dhabi. Demand will pick up in the summer, and OPEC wants to make sure markets are well-supplied, he said, Bloomberg reported.

“We do not think it is necessary, given the level of compliance we have seen and given the expectations of demand,” al-Falih said Monday. “The rebalancing which started slowly in 2016 will have its full impact by the first half. Of course, there are many variables that can come into play between now and June, and at that time we will be able to reassess.”

Saudi Arabia is due to meet fellow members of the Organization of Petroleum Exporting Countries in May 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 to reduce inventories and shore up prices.

OPEC’s decision on Nov. 30 to cut output reversed a two-year policy that let members pump all they wanted to try to maximize sales—a strategy that had contributed to a worldwide glut. The producer group, together with 11 other countries including Russia, is seeking to reduce supply by about 1.8 million barrels a day. The cuts took effect on Jan. 1 and are to last through June.

“All players have indicated their willingness to extend, if necessary,” al-Falih said. “Based on my judgment, I think it is unlikely that we will need to continue. Demand is going to pick up in the summer, and we want to make sure the markets continue to be supplied well. We do not want to create a shortage or a squeeze, so the extension will only happen if there is a need, and if there is a need, we will do it. ”