The oil market is expected to be in balance towards the end of 2019, as global inventories fall and demand remains strong, but OPEC’s job is not done yet, Kuwait’s oil minister told Reuters.
There are still uncertainties around oil demand growth due to concerns about the impact of the U.S./China trade dispute on global economy, while U.S. shale oil production is still rising, Khaled al-Fadhel said on Monday.
This uncertain outlook is making it tough for OPEC and its allies to have a clear oil supply plan for the second half of the year. Fadhel said it was too early to say now if the oil producers will extend their current output targets after June.
The Organization of the Petroleum Exporting Countries (OPEC), Russia and other non-OPEC producers, known as OPEC+, agreed to reduce output by 1.2 million barrels per day (bpd) from Jan. 1 for six months, a deal designed to stop inventories building up and weakening prices.
“There is great anxiety in the market today mainly related to supply concerns. For example, the impact of the U.S government decision announced recently not to extend the waivers to major buyers of Iranian crude has yet to be felt,” Fadhel said in written answers to questions from Reuters.
He also cited the possibility of further U.S. sanctions on Venezuela, political tensions in Libya, U.S. shale oil production growth and trade dispute between Washington and Beijing as reasons why the global supply and demand outlook remains unclear.
“If we are to look at the OECD commercial inventories, I think we are on the right track. OECD Inventories are falling towards the last 5 year average, and the record level of conformity reached in April by OPEC and its non-OPEC partners have played a significant role,” he said.
Oil producers’ compliance with the supply-reduction agreement was 168 per cent in April.
“But we still have some more work to do. I believe the market is expected to be balanced during the 2nd half of 2019, more towards the end of the year.”
Seasonal oil demand growth is expected to be strong in the next few months as refineries globally come out of maintenance, but there is still uncertainty on the demand side, he said.
OPEC’s share of the agreed cuts is 800,000 bpd, but its actual reduction is larger due to production losses in Iran and Venezuela. Both are under U.S. sanctions and exempt from the voluntary reductions under the OPEC-led deal.
That shows that OPEC+ producers are cutting output by more than their share. Saudi Arabia has been pumping below its production target since January to keep oil inventories and prices in check.
U.S. President Donald Trump has called on OPEC and the group’s de facto leader Saudi Arabia to boost output and lower oil prices.
Russia also wants to increase supply after June when the OPEC+ pact is due to expire, but Riyadh fears a crash in oil prices and a buildup in inventories.
Asked whether an increase in oil supply is a possibility in the second half of the year, Fadhel said: “All options are on the table. It is not an unlikely scenario.”
“You surely recall June 2018, what OPEC and its allies did last year when they decided to lower conformity level from 152 per cent to reach 100 per cent by increasing crude production when there was a growing perception of supply shortages back then,” he said.
A long-term co-operation agreement between OPEC, Russia and other non-OPEC producers will be on the agenda at the OPEC+ meeting in June, the Kuwaiti minister said.