Khalid al-Falih, speaking at the CERAWeek conference in Houston, said the kingdom is undecided about continuing the current cutbacks and a resolution will be made when ministers gather in May. It’s a subtle yet significant shift from just six weeks ago, when the minister said in Davos, Switzerland that an extension probably wouldn’t be needed.
The Organization of Petroleum Exporting Countries and Russia are leading supply reductions to try to end a surplus that has battered their economies, triggered currency crises, sapped investment in new wells and wiped out hundreds of thousands of jobs. Yet U.S. crude inventories remain near record levels and the nation’s shale drillers are returning to work at a pace that could swell them further.
Oil markets responded negatively to Al-Falih’s comments, slipping from an intraday high of $53.80 a barrel shortly before the minister spoke to as low as $53.23 as of 11:30 a.m. in New York.
U.S. oil production has rebounded to the highest in a year, topping 9 million barrels a day, as shale explorers resume operations with a discipline and efficiency honed during the downturn. The nation’s crude inventories probably expanded for the ninth week in a row last week, according to a Bloomberg survey.
“The green shoots in the U.S. are growing too fast,” Al-Falih said, drawing laughter from the audience.
While the minister didn’t rule out extending the duration of the oil-supply cuts, he was insistent that Saudi Arabia wouldn’t act alone. The kingdom won’t “indefinitely” maintain its curbs without help from others, he said. While OPEC and its partners are making good progress, compliance with the agreement “could improve,” he said.
“Saudi Arabia will not allow itself to be used by others,” Al-Falih said. “We will not bear the burden of free riders.”
Al Falih’s concern about the slow pace of stockpile reductions was echoed by Suhail Al-Mazrouei of the United Arab Emirates. Inventories should decline more in the second quarter, Al-Mazrouei, the emirates’ oil minister, said during an interview at the CERAWeek event.
Russia gave assurances that it will cut another 40,000 barrels a day from supply this month, Al-Falih said. That would put the largest non-OPEC producer participating in the agreement about halfway to the 300,000 barrel-a-day cut that it pledged to implement by April or May.
Al-Falih’s comments on continuing the deal echo those of Russia, whose energy minister Alexander Novak said on Monday it was premature to speculate. The Saudi minister repeated that OPEC is intervening to fix a “temporary glut” and the group will only make a decision on whether to extend its deal after looking at stockpile data in the second quarter. OPEC ministers will meet on May 25 in Vienna.
Two of Al-Falih’s fellow OPEC nations, Iraq and Angola, signaled at the same conference on Monday that they’re willing to prolong the accord if it’s considered necessary. Still, Iraq has been slow to deliver the cuts it promised, and Angola was allowed to increase output under the current deal.