Saudi Arabia will only play steward of global oil production for a limited period before stepping back and allowing the free market to complete the supply rebalancing act, Saudi Oil Minister Khalid A. Al-Falih told CNBC on Tuesday.
"History has demonstrated that intervention in response to structural shifts is largely ineffective, and I believe we in the organization have learned that lesson. That's why Saudi Arabia does not support OPEC intervening to alleviate the impacts of long-term structural imbalances," he said.
As the largest producer in the Organization of Petroleum Exporting Countries (OPEC), the KSA is the de facto leader of the group, which includes other major Persian Gulf producers, namely Iran and Iraq.
The members of the bloc, along with 11 other non-members, agreed to cut production by 1.8 million barrels in an effort to lower supply after 2.5 years of glut. Overall, compliance to the deal has been high by members of OPEC, who have made 94 percent of the promised reductions. A closer look reveals that Saudi Arabia has been cutting almost twice as much as it had agreed to in order to keep barrel prices growing since other nations have struggled to meet their numbers.
The eleven non-OPEC nations that agreed to downsize production agreed to a combined cut of almost 600,000 barrels, but compliance amongst these countries has hovered around 66 percent over the past two months. Oil officials from Iraq and NOPEC Russia both believe it is too early to consider extending the deal to beyond its current six-year term.
"In light of improving fundamentals, whose effect has been amplified by the OPEC and non-OPEC cooperation framework, I am optimistic about the global market outlook in the weeks and months ahead," the Saudi official said. "Though I would caution that my optimism should not tip investors into what I would call irrational exuberance or wishful thinking that OPEC or the kingdom will underwrite the investments of others at our own expense and long-term interests."
By Zainab Calcuttawala for Oilprice.com
More Top Reads From Oilprice.com:
- Regulation May Stall The Future Of Energy Storage
- Oil Prices Hold Steady Ahead Of Inventory Data
- OPEC Sends Mixed Signals About Output Cut Extension