Saudi Oil Minister Ali Al-Naimi said on Tuesday he was confident more nations would join a pact to freeze output at existing levels in talks expected next month, but effectively ruled out production cuts by major crude producers anytime soon.
Addressing the annual IHS CERAWeek conference in Houston, Naimi told global energy executives that growing support for the freeze and stronger demand should over time ease a global glut that has pushed oil prices to their lowest levels in more than a decade.
“A freeze is the beginning of a process. If we can get all the major producers to agree not to add additional barrels then this high inventory we have now will probably decline in due time,” said Naimi, possibly the world’s most powerful oil policymaker.
But he was emphatic markets should not view the nascent agreement as a prelude to production cuts.
“That is not going to happen because not many countries are going to deliver,” Naimi said during a Q&A session after his speech broadly restated the rationale behind Saudi Arabia’s decision to maintain output in the face of tumbling prices.
“Even if they say that they will cut production they will not do it. There is no sense in wasting our time seeking production cuts. They will not happen,” he stated.
After a surprise meeting a week ago, Saudi Arabia, Russia, Venezuela and Qatar agreed to freeze production at January levels and Naimi predicted more support from other countries.
“Hopefully some time in March there will be another meeting and probably gather more agreements on freezing,” he said.
Later on Tuesday, Venezuelan Oil Minister Eulogio Del Pino told Reuters he was seeking to convene another meeting of major OPEC and non-OPEC producers in mid-March, with more than 10 expected to sign on to the agreement.
Naimi did not address the issue of Iran, the biggest obstacle to a global deal to limit crude production, as it focuses on ramping up output after years of sanctions.
Mohammed bin Hamad Al-Rumhy, Oman’s Minister of Oil and Gas, suggested Iran could be exempted from any Organization of Petroleum Exporting Countries’ agreement because it suffered sanctions.
“One solution is that Iran is given time to ramp up production. This is up to OPEC and non-OPEC countries to decide.” Al-Rumhy said.
Oman, the largest non-OPEC producer in the Middle East, would be willing to cut 10% of its production if a deal was reached, he said.
“One non-OPEC country is willing to join hands with OPEC, and that is us,” Al-Rumhy added.
While Naimi’s speech and subsequent discussion marked his most expansive public comments in months, he offered little new insight on the state of oil markets or the evolution of policymaking in Saudi Arabia, the world’s biggest exporter.
Instead, he sought to make peace with an oil industry that has struggled with the Kingdom’s and OPEC’s decision in late 2014 to refrain from cutting output to shore up prices, as it had done for decades.
Oil prices have fallen 70% since mid-2014 as surplus crude piled up.
“We have not declared war on shale or any given country or company, contrary to all the rumours,” Naimi said in the speech.
It was Naimi’s first public appearance in the United States since the OPEC November 2014 meeting.
“We are doing what every other industry representative in this room is doing. We are responding to challenging market conditions and seeking the best possible outcome in a highly competitive environment.”
He said the kingdom welcomed ‘all sources of supply’, including shale.
“We are hopeful that the nimbleness and responsiveness demonstrated by shale oil producers will continue. These supplies may be needed quickly once markets balance and tighten,” Naimi commented.
Naimi also reiterated his longstanding position that Saudi Arabia was ready to meet customer demand, maintaining a cushion of spare production capacity and remaining open to ‘cooperative action’ with other producers to create a stable oil market.
