Saudi Arabian energy minister Khalid al-Falih, and Opec secretary-general Mohammed Barkindo pose for a photo with employees after the conference of the 14th meeting of the joint ministerial monitoring committee in Jeddah, Saudi Arabia, May 19 2019. Picture: REUTERS/WALEED ALI
Saudi Arabian energy minister Khalid al-Falih, and Opec secretary-general Mohammed Barkindo pose for a photo with employees after the conference of the 14th meeting of the joint ministerial monitoring committee in Jeddah, Saudi Arabia, May 19 2019. Picture: REUTERS/WALEED ALI

Jeddah — Saudi Arabia and other key producers in Opec signalled their intention to keep oil supplies constrained for the rest of the year, while also pledging to prevent any genuine shortages.

It was less clear, however, how far Russia, their main partner in the wider Opec+ producers’ coalition, shared that view. While most nations at a meeting on Sunday supported extending production cuts into the second half, Russian energy minister Alexander Novak said he wanted to wait and see what happens in the next month.

The contrasting messages underscore the uncertainty in the oil market. If ministers don’t agree an extension next month, the production cuts that ended the worst oil-industry downturn in a generation will expire. Yet the decision is clouded by the impact of US sanctions on Iran and the risk to demand from President Donald Trump’s trade war with China.

Saudi Arabia is trying to strike a balance between the need for higher crude prices to fund government spending and pleasing Trump by filling any supply gap created by his Iran sanctions.

Draining inventories

Continuing the Opec+ accord into the second half would not  rule out a production increase. Saudi Arabia has been cutting far deeper than required under the deal and could boost output by about 500,000 barrels a day — equivalent to almost half Iran’s exports — without breaching its limit.

Yet energy minister Khalid Al-Falih indicated that the kingdom is not about to open the taps freely.

“My recommendation to my colleagues will be to drive inventories down gently” by staying on the current trajectory, Al-Falih said before the meeting. He acknowledged consumers’ concerns about potential supply disruptions and promised to make sure “no refinery, no customer is left without their requirement of crude oil”.

The meeting of the joint ministerial monitoring committee, which oversees the deal between the Opec and its allies, was generally supportive of extending the existing cuts for the whole year, and nobody rejected the idea, Nigerian oil minister Emmanuel Ibe Kachikwu said in a Bloomberg television interview after the talks.

No recommendation

Yet the committee didn’t make a formal recommendation to prolong the supply curbs, concluding instead that further monitoring of the market was necessary, with a focus on managing inventories and keeping supply and demand in balance.

Russia’s Novak affirmed his commitment to the historic alliance, saying the production cuts have “proved very efficient”. That counts as high praise from the taciturn official, yet before and after the meeting he also spoke of the possibility of relaxing the cuts.

“We need to promptly react to the situation now and potential developments in the second half,” Novak said before the meeting. “If the demand grows, if a deficit is there, we are ready to consider a relaxation of the current parameters, partial output recovery.”

All Opec members and its allies are keen to avoid a repeat of 2018, when faced with similar circumstances the group boosted output too fast and triggered a fourth-quarter price slump. Other ministers in Jeddah, including those from Oman and the United Arab Emirates, also said the group should stay the course.

“The job is not complete,” UAE energy minister Suhail Al Mazrouei said on Saturday. “We are still seeing some inventory buildup and we need to attend to it.”

Bloomberg