Crude oil inventories in the world are rising despite U.S. sanctions, which have affected Venezuelan and Iranian production, Saudi Arabia’s Energy Minister Khalid al-Falih said, as quoted by Reuters, at a briefing in Baku where OPEC is meeting with its production cut partners to discuss future steps.
According to Falih, it’s U.S. production that is more than offsetting the decline in Venezuela and Iran. Unsurprisingly, Falih once again said the cuts may need to extend beyond April and even into the second half of the year.
“My assessment is that the job still remains ahead of us... We are still seeing inventory builds... We need to stay the course certainly until June,” the official said, adding “We like to remain ready to continue monitoring supply and demand and do what we have to do in the second half.”
OPEC and its partners led by Russia agreed to remove 1.2 million bpd from global supply in December in a bid to prop up falling prices. Although Saudi Arabia has been cutting more than agreed, like last time, compliance has not yet reached 100 percent. As of February, it stood at 89 percent, an improvement from 83 percent for January. Iraq and Nigeria were behind the lower compliance rate as they produced more than they had agreed to.
Saudi Arabia, Al-Falih said earlier this month, will continue pumping 9.8 million bpd in April as it plans to do this month, which is lower than what it agreed to produce under the December agreement. If it decides to maintain this production rate beyond April, however, this might rekindle concern about insufficient supplies. Related: Oil Markets In Limbo Ahead Of OPEC Meeting
Interestingly, Goldman Sachs said early this month it expected the cartel to clear up the supply overhang by April, which would make it unnecessary to continue producing less until June.
Goldman’s commodity chief Jeffrey Currie told CNBC, "OPEC is pursuing a shock and awe strategy," cutting production faster and deeper than the investment bank expected. This suggests that supply will tighten sufficiently by April for OPEC to call the mission accomplished.
After that, Currie said, OPEC will probably take a month or two to announce how it will proceed with dialing back the cuts and this would discourage U.S. producers from boosting their own production further, bringing about another price crash.
By Irina Slav for Oilprice.com
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