LONDON (Rahnuma) : Khalid Al-Falih, the Saudi energy minister, said on Tuesday that OPEC and non-OPEC countries, principally Russia, are expected to sign an “open-ended agreement” at year-end that would extend, perhaps indefinitely, a supply agreement first struck in 2016.
It would be a landmark accord in that it would underscore a growing energy alliance between KSA and Russia at a time when both countries face intensifying competition from large-scale US production, propelled by the shale revolution. They would also be cementing a relationship during a period when both countries have angered US politicians in Washington.
Saudi Arabia faces hostility in the wake of the Khashoggi affair, while Russia has been roiled by the US sanctions on Moscow in the wake of Moscow’s intervention in Crimea and Ukraine. Russia has also been angered by President Donald Trump’s threat to pull out of a bilateral agreement to limit nuclear missile deployment.
The 2016 OPEC-plus supply-cuts accord aims to bring supply and demand back into alignment after the price of oil slumped to below $40 per barrel two and a half years ago.
Following an extension of that agreement, the price of crude has risen to about $80/bbl, and analysts have been trying to guess whether the accord would be ditched amid a dramatic fall in inventories and a better market balance.
Also, investors have been spooked by the looming threat of a possible supply crunch as the reimposition of US sanctions against Iran are forecast to take 1 million bbl/d out of the equation by early next year.
Falih’s statement showed that longer-term co-operation between OPEC and Russia is on the cards in a bid to keep the market adequately supplied post-Iran sanctions, and to offset any imbalances in supply and demand that could come into play as the US cranks up production and export volumes. The US is expected to become the largest oil producer in the world next year, according to the International Energy Agency.
Speaking at an investment conference in Riyadh, Falih said OPEC and non-OPEC producers are expected to sign in December an accord to continue cooperation in world energy markets.
“I don’t rule out that the Kingdom’s production, which has been 9-10 (million barrels per day) over the last decade or so will be a million to two millions (barrels) higher,” Falih said, without providing a time frame.
Saudi Arabia has already boosted its daily output to well over 10.5 million bpd to meet rising demand in the wake of several production disruptions in other countries — especially Venezuela.
KSA currently holds the biggest spare capacity of about 2 million barrels, which can be used when required.
“Investing in the capacity and producing the capacity will continue to be done,” Falih said, despite complaining about the high cost of raising and sustaining such capacity.
The Saudi minister expected demand for oil, which currently stands at about 100 million barrels per day, to rise to 120 million bpd over the next three decades.
Falih said that about 25 producing countries from OPEC and non-OPEC are expected to sign in December a long-term cooperation agreement following the success of their coordination that helped to boost prices.
“What we are hoping to do is to ink an agreement among at least the 25 (producers) that are signatories to the current agreement. Hopefully more countries will join,” he said.
“It will become an open-ended agreement to continue to monitor and work together to stabilize the markets. This is the objective of the agreement: monitor and stabilize,” he said.
Falih said that he believes the oil market is “in a good place today in terms of supply and demand balances and inventories” after lifting restrictions on output in June.
Falih said oil producers will continue to monitor supply and demand in the market, especially with the Iran sanctions about to kick in, and would be ready to act if needed.