OPEC and Russia-led non-OPEC oil producers left any 'exit strategy' talk out of their agreement to extend the production cut pact through the end of 2018 last week, and now Saudi Arabia's Energy Minister Khalid al-Falih fed the market some hints about what OPEC would do after the cuts.
Unless sudden oil market developments occur, OPEC is expected to continue sticking to the production cuts until the end of next year, and "we will not alter our course in the second half of the year," al-Falih said at a news conference in Riyadh on Monday.
"However, we think that the outlook for when we will hit the balanced market will be clearer in June, and we will start thinking of what do we do in 2019," the most powerful oil minister at OPEC said, as carried by Reuters.
"The intent is not overnight to open the taps and flood the market," Bloomberg quoted al-Falih as noting.
But should sudden disruptions in supply occur, OPEC is ready to bring back more supply to the market because it has enough spare capacity, the Saudi minister said.
"We have close to 2 million barrels [bpd] of spare capacity so our ability to bring back production in case of need for global supply security goes beyond the amount of cuts we have made," al-Falih said. Related: The Man Behind The Oil Price Rally
But the market right now is looking at the growing supply coming from producers outside the OPEC and allies' deal, most notably U.S. shale.
After OPEC rolled over the cuts through the end of next year, Ed Morse, global head of commodities research at Citigroup, told Bloomberg that "This OPEC is in a defensive mode, and it's gonna lose in the long run because the world has changed relatively dramatically since those other OPECs of other points in time."
The higher the price of oil goes, the more oil will be coming to the market, Morse told Bloomberg, noting that even the cost of producing deepwater resources and Canada's oil sands are now "well below the fiscal breakevens of these OPEC countries."
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More