Top oil exporter Saudi Arabia called on Sunday for extending cooperation between OPEC and non-OPEC producers beyond 2018, after a deal to cut output succeeded in shoring up prices.
The call, the first explicit invitation by Riyadh for long-term cooperation between oil producers, came with oil prices topping $70 a barrel thanks to the deal, after they dove below $30 a barrel in early 2016. “We should not limit our efforts to 2018. We need to be talking about a longer framework for our cooperation,” Saudi Energy Minister Khaled al-Faleh told reporters before a meeting between ministers of OPEC and non-OPEC countries in the Omani capital Muscat.
At the end of the meeting, attended by several OPEC and non-OPEC countries including the world’s top producer Russia, Faleh said conformity levels were excellent. He said that compliance level was 129 percent in December and was 107 percent for the whole of 2017.
The production cuts deal has removed two-thirds of the 330 million barrels of extra stocks that were on the market before the agreement, Faleh said. He said improvement in the oil market will continue throughout this year and expected that “beyond 2018, we will continue to cooperate through these joint action mechanisms … to avoid strong fluctuations that led to the oversupply glut.”
Oil producers from inside and outside the Organization of Petroleum Exporting Countries signed a landmark agreement in November 2016 to cut output by 1.8 million barrels per day to fight oversupply and lift sagging prices. That deal was initially for six months, but the 14-member cartel and 10 independent producers have since extended it until the end of this year.
Amid talk of exiting the deal at the end of the year, the Saudi minister said the agreement should be extended for an unspecified duration. “I am talking about extending the framework that we started—which is the declaration of cooperation… beyond 2018,” Faleh told reporters.
Faleh however said the new framework for cooperation might differ from the current agreement and its production quotas. “It does not necessarily mean sticking barrel by barrel” to the same agreement. It would mean “assuring stakeholders, investors, consumers and the global community that [the agreement] is here to stay.”
It would send the message that “we are going to work together not only with the 24 countries, but inviting more and more participants,” he said.
Faleh said oil producers had not yet achieved their target of reducing world stocks to normal levels and striking a balance between supply and demand. “That objective has not been achieved. We are not close to achieving it,” said Faleh, adding that a rebalance is unlikely in the first half of 2018.
Russian Energy Minister Alexander Novak said oil producers should not ease off on their efforts despite the rebound. “Despite the fact that progress is obvious, we must not relax. We are determined to carry through the rebalancing,” Novak, whose country is the world’s top crude producer, told reporters.
Novak held separate talks with Faleh on the sidelines of the Muscat meeting. The Russian minister praised the outcome of the cuts deal. “The market got on the way towards balancing and we jointly managed to reduce the surplus in stocks by more than half,” Novak said.
But Novak but appeared less committed to the idea of establishing a permanent framework. “As for efforts to coordinate joint actions on the oil market, the last year showed that this is a successful experiment,” he told reporters, according to Russia’s RIA Novosti news agency. “I think that if necessary it can be used in the future too.” But “mutual action between OPEC and non-OPEC countries” could also continue after the end of the agreement in the form of “consultations,” Novak added.
Omani Oil Minister Mohamed al-Rumhi said different arrangements could be discussed. “By the end of this year, the stock level will be very small and it will be time to discuss different arrangements or agreements,” he said.
Gulf states as well as many oil-producing nations have posted huge budget shortfalls since oil prices plummeted in mid-2014.