Saudi doubts extension to oil output cap needed

ABU DHABI: Saudi Arabia’s Energy Minister Khaled Al-Falih said Monday it was “unlikely” oil producers would need to extend a six-month cap on output, pointing to a pick-up in global demand.
“Based on my judgment today, I think it is unlikely that we will need to continue” after June, Falih told reporters at an energy forum in Abu Dhabi.
“Demand will pick up in the summer and we want to make sure that the markets continue to be supplied well and we don’t want to create a shortage or a squeeze,” he added.
Falih said oil markets began rebalancing in 2016, which “will have its full impact in the first half” of this year.
“Of course, there are many variables that could come into play between now and June. At that time, we’ll be able to assess,” he said.
Falih said all concerned producers have expressed “their willingness to extend if necessary.”
“The extension will only happen if there is a need, and if there is a need we will do it,” he added.
The UAE’s Energy Minister Suhail Al-Mazrouei said Wednesday it was too early to consider extending the deal.
Oil prices were down on Monday due to doubts that large crude producers will reduce production as promised and on expectations that US production would increase again this year.
The Organization of the Petroleum Exporting Countries (OPEC) has agreed to cut production by 1.2 million barrels per day (bpd) to 32.5 million bpd from Jan. 1 in an attempt to clear global oversupply that has depressed prices for more than two years.
Russia and other key exporters outside OPEC have said they will also cut output.
But global oil production remains high and, with inventories near record levels in many areas, investors doubt that OPEC and its allies can trim output enough to push up prices.
Benchmark Brent crude oil was down 4 cents a barrel at $55.41 by 11:14 a.m. EST (1613 GMT) and US West Texas Intermediate crude was down 10 cents at $52.27 a barrel.
“Cuts by OPEC and non-OPEC countries have just started and it will take some time for them to filter through,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets in Oslo.
“We do not really expect the oil price to strengthen much more in the first quarter of 2017.”
Rising US oil output is also preventing crude from climbing.
Goldman Sachs said it expects year-on-year US oil production to rise by 235,000 bpd in 2017, taking into account wells that have been drilled and are likely to start producing in the first half of the year.
US oil output is now at 8.95 million bpd, up from less than 8.5 million bpd in June last year and at similar levels to 2014, when overproduction send the market into a tailspin.
Russian oil and gas condensate production averaged 11.1 million bpd for Jan. 1-15, two energy industry sources said on Monday, down only 100,000 bpd from December. Russia has committed to a 300,000 bpd cut during the first half of 2017.