Oil producers are moving closer towards agreement on extending the Opec-led deal to limit output, Saudi Arabia’s energy minister said on Thursday, as the cartel battles excess stockpiles and a resurgent US shale industry that have weighed on prices.
Khalid al-Falih said the deal could be run for another three to six months beyond the end of June. Under the terms of the existing accord, Opec members and countries outside the cartel, including Russia, agreed to cut their output by about 1.8m barrels a day throughout the first half of 2017.
A preliminary agreement to extend the deal had been reached by most, but not all, producers, he said.
“Consensus is building, but it is not done yet,” Mr Falih told reporters on the sidelines of an energy industry event in Abu Dhabi. “We are still in consultations.”
The remarks from Opec’s de facto leader represent the clearest signal yet that the group seeks to extend the deal in order to curb stubbornly high inventories and bring to a close the biggest oil downturn in a generation.
The oil price crash that started in 2014 battered the economies of producer nations and roiled the share prices of energy companies.
Global oil prices staged a slight recovery following the comments after falling by more than 4 per cent on Wednesday. Prices then levelled off by 6.15pm trading in London. Brent, the international benchmark was flat at $52.96 a barrel while West Texas Intermediate, the US marker, ticked lower by 10 cents to $50.34 a barrel.
The status of global oil stocks would determine any extension at the next meeting of Opec ministers on May 25, Mr Falih said on an earlier televised discussion among the six Gulf oil ministers on Sky News Arabia.
“Our target is the level of inventories as an indicator of the success of our initiative,” he said.
The International Energy Agency said last week that inventories in industrialised countries were still slightly above the five-year average, one metric for Opec.
“So we will watch [inventories in] April and May and our colleagues will be keen to take the right measures in this regard,” Mr Falih said.
Essam al-Marzouq, Kuwait’s oil minister, said he expected Opec to extend the deal, noting increasing compliance from Opec and non-Opec members.
Although oil prices have bounced back above $50 a barrel since the agreement — the first collective deal since 2001 — there are concerns among market participants about whether the cuts will be enough offset higher output elsewhere.
The market remains caught between evidence of strong compliance by Opec members with the supply curbs and a resurgent US shale industry as prices have rebounded.
The chief executive of Total, the French oil and gas giant, said on Thursday that oil prices could slide by the end of the year due to a rapid increase in US shale drilling. “The price may fall again . . . US producers who have recovered quickly, will regenerate an influx of supply by the end of the year and this could have a negative impact on the markets,” Patrick Pouyanne said during a conference in Paris.
Meanwhile while oil being stored at sea and in tanks in producer countries have eased, inventories remain stubbornly elevated in the US as well as in Asia.
Mohammed Barkindo, Opec secretary-general, said in Abu Dhabi on Wednesday that the current strategy had put the oil market “on the path of recovery”. “Our collective action will continue to prove effective,” he said.
Additional reporting by Ed Crooks