WASHINGTON
Oil’s recovery to almost $70 a barrel hasn’t been sufficient to stimulate the return of enough investment in the sector, according to Saudi Arabia’s energy minister.
Investment is still $1 trillion below the level it was before oil’s downturn in 2014, Khalid Al Falih said in a Bloomberg Television interview in Washington Thursday. “That tells me that the pricing signals that have come out of the recovery have not been sufficient,” he said.
The energy minister is in Washington as part of a three-week US tour with Saudi Crown Prince Mohammad Bin Salman. Brent crude has risen almost 37 per cent since November 2016, when Opec and Russia led a coalition of 24 producers in output cuts aimed at clearing the supply glut unleashed by the US shale-oil boom. Both Opec and the International Energy Agency forecast that the production cuts will succeed in eliminating the oil-inventory surplus this year. The group saw record compliance with production-cut targets in February.
Al Falih said the supply cuts have succeeded in trimming a global supply glut by two-thirds, but the rate at which inventories have been drawn down so far may not be sustainable at the same pace in 2018. “When exactly we will finish the job is not clear,” he said.
Production at mature fields is slipping in countries including Mexico, Venezuela and China, which will help determine how fast the remaining supply overhang drains.
The price surge has also been a boon to the US shale industry, helping boost American crude output to a record high. Government data show US oil production has pushed past Saudi Arabia’s and could reach 11 million barrels a day later this year. IEA Executive Director Fatih Birol has said “explosive growth” in US oil output may extend beyond this year.
It’s not clear whether shale’s surprising 1-million-barrel-a-day growth last year will continue at the same rate, he said. Despite that increase, last year “still was accompanied with a significant stock draw.”
Opec and its allies are said to have held discussions about changing the way they measure the impact of their production cuts, amid concern that the current way of gauging success is flawed.
Collaboration among the Opec and non-Opec members won’t stop once the market is in balance, according to Al Falih.
“We’ll be on together in 2019 and beyond,” he said. “We will have a framework where we’re always monitoring, always working together, and always ready to step in to adjust production to stabilise the market. It could be to cut, it could be to step in to increase production as the markets require. The idea is almost a permanent framework of the countries working together.”
