Saudi Arabia remains focused on reducing oil stocks in industrialized countries to their five-year average, Saudi Arabia’s energy minister said on Tuesday (October 24).
The world’s biggest crude exporter also raised the prospect of extending oil supply cuts once the Organization of the Petroleum Exporting Countries’ (OPEC) deal ends.
“We are very flexible, we are keeping our options open. We are determined to do whatever it takes to bring global inventories down to the normal level which we say is the five-year average,” Khalid al-Falih told Reuters.
Last year, the cartel signed a historic deal to curb oil production for the first time in eight years. OPEC members, together with other top producers such as Russia, agreed to reduce the oversupply in the market by cutting 1.2 million barrels per day of oil production.
In May, they decided to extend the deal until the end of March, largely because their efforts to balance the market have been offset by increasing US shale production. Next month, OPEC meets again and is expected to prolong the cuts, as prices continue to trade above the key $50-a-barrel level.
“When we get closer to that [five-year average level] we will decide how we smoothly exit the current arrangement, maybe go to a different arrangement to keep supply and demand closely balanced so we don’t have a return to higher inventories,” Falih told Reuters.
The minister did not comment on a possible extension but added that the cuts had reduced inventories by over 180 million barrels.
“The intent is to keep our hands on the wheel between now and until we get to a balanced market and beyond, we are not going to do anything that is going to disrupt the path we are on,” Falih added.
On Tuesday, December West Texas Intermediate crude closed 57 cents up, at $52.47 a barrel on the New York Mercantile Exchange, while Brent crude for December delivery on London’s ICE Futures exchange rose 96 cents, to $58.33 a barrel.
OPEC is implying it’s “likely to accept the current supply discipline for the rest of 2018, and ultimately the market is looking at that as optimistic,” said Bart Melek, head of global commodity strategy at TD Securities in Toronto.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.