Saudi Arabia’s energy minister says OPEC won’t extend its international deal to curb oil production past this summer if other countries don’t do their part to cut output.
“We will not bear the burden of free riders,” Khalid Al-Falih said in Houston on Tuesday. “Saudi Arabia will not allow itself to be used by others. My colleagues have heard that privately, and now I’m saying it publicly.”
In November and December, the Organization of Petroleum Exporting Countries announced an agreement within the cartel and with major oil-producing countries like Russia to cut crude output by just under 1.8 million barrels a day.
The pact helped lift oil prices into the $50-a-barrel range and solidify a sluggish recovery, stirring investors’ hopes that the oil glut in global crude inventories would dissipate and lift prices higher.
But one question that has repeatedly emerged at one of the energy industry’s largest gatherings of the year has been whether the cartel will keep the self-imposed ceiling on oil production beyond June, when the pact is set to end.
Continuing the Organization of Petroleum Exporting Countries’ pact with countries like Russia, Falih said, hinges on how far crude inventories fall over the next few months and the level of cooperation with promised output cuts by other countries.
Saudi Arabia has cut more oil production than it originally promised in November, and Falih said he was satisfied, for the most part, with other countries’ production cuts. Still, global oil inventories have not declined as much as he had hoped in the first two months of the year, Falih said during a discussion with energy author Dan Yergin at the energy conference IHS CERAWeek.
Falih also suggested Saudi Arabia wouldn’t support a long-term production cut, because history has shown market intervention “and response to structural shifts is largely ineffective.”
“That is why Saudi Arabia does not support OPEC intervening to alleviate the impact of long-term structural imbalances, as opposed to addressing short-term aberrations,” he said. Those aberrations include financial crises, economic recessions, unexpected disruptions in oil production and today’s glut in crude inventories.
In his speech, Falih also swung hard at the idea that oil demand will soon peak. He said he believes climate change policies and the advent of fuel-efficient technology haven’t quenched the world’s “insatiable thirst” for oil.
Demand for oil, he said, will continue to grow steadily in coming decades in places like China, India and Malaysia. He called projections of peak oil demand “misguided,” and said they could discourage “the trillions of dollars of investment needed to underpin essential oil and gas supplies.”
“Underinvestment driven by such (projections) amount to nothing less than compromising the world’s energy security by squandering staggering quantities of our planet’s natural energy endowment,” he said, “which in turn will create heightened market volatility, including damaging price spikes, and more acute energy poverty in the developing world.”
Later, in a discussion with IHS Vice Chairman Dan Yergin, Falih warned the oil industry has been too slow to begin investing again in long-term projects, even as the “green shoots” of the recovery in the oil market have emerged. The advent of U.S. shale oil may have discouraged oil companies from investing in larger, longer-term projects, he said.
“I’m still not seeing the confidence,” Falih said, referring to oil companies investing in long-term projects. “I would love to see some of that investing and funds going in short-cycle projects shifting to the long cycle because in the short term, we’re well supplied and and we have a large inventory glut.”