Last week, Saudi Arabia led OPEC members and Russia led participating non-OPEC countries agreed to extend the production agreement, which was first commenced in November last year with an aim to reduce global oil supplies by 1.76 million barrels per day compared to the October 2016 level, until the end of next year. In a carefully drafted statement on the meeting, OPEC avoided hinting at an exit strategy or plan, however, Saudi Arabia’s oil minister Khalid al-Falih what could be the plan now.
According to the minister, the biggest oil exporter is not thinking much about an exit strategy. At a news conference in Riyadh, Mr. Falih said that OPEC will not alter its course in the second half of the year like many analysts had suggested looking at Russia’s reservation towards extending the agreement and provide leeway to shale producers in the United States. However, Mr. Falih hinted what the de-facto OPEC leader might do if market tightens too much, “we think that the outlook for when we will hit the balanced market will be clearer in June, and we will start thinking of what do we do in 2019……The intent is not overnight to open the taps and flood the market……We have close to 2 million barrels of spare capacity so our ability to bring back production in case of need for global supply security goes beyond the amount of cuts we have made”.
