OPEC and allied oil producers should extend their collective production cuts into the second half of the year when an expected upturn in demand will help to re-balance the crude market, UAE Energy Minister Suhail Al Mazrouei said.
All countries participating in the cuts must agree to any extension, he said Tuesday in the UAE capital Abu Dhabi. The Organization of Petroleum Exporting Countries and other major suppliers including Russia agreed to pump less oil during the first six months of the year to try to counter a global oversupply weighing on prices.
“There is a major logic in continuing the cut, but it’s a consensus decision and not an individual one,” Al Mazrouei said. The production decrease is working, and the market is moving toward equilibrium, he said. “I’m optimistic that as long as the agreement is there, the market will be heading toward re-balancing.”
The UAE and fellow members of OPEC enlisted the support of other producer countries last year to curtail output beginning in January. OPEC ministers will decide at a meeting on May 25 whether to extend the limits after June. Brent crude has gained 12 percent since the group announced it would rein in production.
“We have an increasing demand in the second half of the year, and refineries will conclude maintenance work and start consuming oil and draw from inventories,” Al Mazrouei said. “The most important thing is how much oil you take off the market.”
Saudi Arabian Energy Minister Khalid Al-Falih said last week in Baku that there’s a consensus the cuts will be extended into the second half. OPEC and other suppliers have failed, after three months of limiting production, to achieve their target of reducing oil inventories below the five-year historical average, Al-Falih said a week earlier in Abu Dhabi. Saudi Arabia is the biggest producer in OPEC, while the UAE ranks fourth.
“The danger is not about oversupply in the market,” Al Mazrouei said. “What we are focusing on in the second half of the year is the five-year average.”