Riyadh, Saudi Arabia — As uncertainty in the global economy is limiting clarity about the outlook for oil markets, the OPEC+ should stick to the production pact agreed last October, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman has said.
SPA reported that Prince Salman said that sticking to the October agreement is the “sensible and only course of action” for the grouping.
The Organisation of the Petroleum Exporting Countries and its allies (OPEC+) decided to cut oil production by 2 million barrels per day until the end of 2023, which was the largest cut since the beginning of the Covid-19 pandemic.
Asked by the Energy Intelligence whether it would be possible to reverse course and increase production given the current macroeconomic and oil market developments, the minister said: “There are many factors influencing market sentiment. The global economy is forecasted to continue growing this year and next year, but there is still uncertainty around the pace of growth. Moreover, China has just started to rebound after extended Covid lockdowns, but the duration for recovery is still unclear. Economic recovery is generating inflationary pressures, and this could prompt central banks to intensify their efforts to tame inflation.”
“The interplay of these and other factors limits clarity, and the sensible and only course of action in such an uncertain environment is to maintain the agreement we struck last October for the rest of this year and that is what we intend to do. We need to ascertain that the positive indicators are sustainable.
There are those who continue to think that we would adjust the agreement before the end of year. For those I say they need to wait until Friday, 29 Dec 2023 to demonstrate to them our commitment to the current agreement.”
Asked about his views on the US Congress reintroducing the No Oil Producing and Exporting Cartels (Nopec) bill, as well as the G7 price cap on Russian oil, and the potential implications for the oil market, Prince Salman said that Nopec legislation and extending the price cap are very different, but their potential impacts on the oil market are similar.
“Such policies add new layers of risk and uncertainty at a time when clarity and stability are most needed,” he said.
“I must reiterate the view I made on record back in August and September on how such policies would inevitably exacerbate market instability and volatility and would negatively impact the oil industry. In contrast, Opec-plus has made every effort and succeeded in bringing significant stability and transparency to the oil market, especially compared to all other commodity markets,” he added.
Prince Salman said the Nopec bill does not recognize the importance of holding spare capacity and the consequences of not holding spare capacity on market stability.
“Nopec would also undermine investments in oil capacity and will cause global supply to fall severely short of future demand. The impacts will be felt all over the world on producers and consumers alike, as well as on the oil industry,” he said.
Energy Intelligence estimates that global spare capacity is around 2.5 million barrels a day. Prince Salman was asked whether he was concerned about spare capacity, and what is the kingdom doing about it?
” Spare capacity and global emergency stocks are the ultimate safety net for the oil market in face of potential shocks. I have repeatedly warned that global demand growth will outpace current global spare capacity, while emergency reserves are at a historic low,” he said.
The minister added: “That is why it is crucial that policies are put in place to support investments needed to increase spare capacity in a timely manner, and that global emergency stocks are maintained at an adequate and comfortable level. In Saudi Arabia, we have proactively embarked on expanding our capacity to 13.3 million barrels a day by 2027. The expansion is already under way in the engineering phase and the first increment is expected to come onstream in 2025.”