HOUSTON (AP) — Saudi Arabia’s energy minister says OPEC production cuts are working to bolster crude prices and his country will look at whether other oil-producing nations are living up to their promises to curtail pumping before deciding whether to extend the cutbacks beyond this summer.
In a nod to America’s ability to offset much of the OPEC cuts by pumping oil from shale formations, Khalid al-Falih said Tuesday that he is watching the U.S. producers closely after U.S. oil production bounced back quickly as prices rose last year.
OPEC, whose members account for about one-third of global oil output, agreed to cut production beginning in January by 1.2 million barrels a day. Other countries joined in, pushing the total to nearly 1.8 million barrels. By independent accounts, those targets have mostly been met, although some producers, like non-OPEC Russia, have fallen short.
“Some have not lived up to expectations,” al-Falih said, “but as a whole if you look at the totality the agreement is working well.”
According to the Energy Department, U.S. production rose to an average of 8.8 million barrels a day in the fourth quarter after dropping below 8.7 million barrels in the third quarter. The department forecast increases to 9.2 million barrels a day this year and 9.7 million — a possible record — in 2018 in a market outlook issued Tuesday.
Oil prices have stabilized above $50 a barrel — a rebound from early 2016, when they plunged below $30 a barrel — although some analysts had expected closer to $60. The U.S. benchmark closed at $53.14 a barrel Tuesday, while the global benchmark ended at $55.92.
Saudi Arabia is the world’s biggest producer and is carrying the heaviest load of production cuts. While other OPEC members such as Venezuela and Nigeria are in far worse shape economically, the Saudis too feel the pinch. The kingdom needs the money to pay for social programs, raising questions about how long and how low it will go with production cuts, which expire in July.
In deciding whether to favor extending the cuts, his country will look at global oil inventories as the midyear deadline approaches, al-Falih said. Speaking at a conference known as CERAWeek by IHS Markit, he also said growth in developing nations means that demand for oil will remain strong for the year despite efforts to curb carbon emissions, advances in energy efficiency, and competition from renewable energy.
OPEC Secretary-General Mohammad Barkindo of Nigeria met during the Houston conference with CEOs of several leading U.S. shale-oil operators. They told Barkindo how they cut costs and became more efficient.
“They did a great job,” Barkindo said of his cartel’s American rivals. Still, some went bust, and layoffs swept the oil patch.
Without going into great detail on their meeting, which he termed private, Barkindo said both sides want to avoid another oil slump like the last one, which was aided by surging production from the U.S. and accelerated when OPEC decided in November 2014 not to cut production to shore up crude prices.
“They are sold on that as well because they felt the brunt,” he said of the Americans.
Al-Falih also spoke briefly about Saudi Aramco’s pending IPO, planned for next year, will knit the state-owned company more closely into the international economy. He highlighted Aramco investments in the U.S., including taking control over a Texas refinery that had been run in a joint venture with Royal Dutch Shell, which said it will get $2.2 billion from Saudi Aramco.
In discussing the U.S. shale rebound, al-Falih, who earned a degree in mechanical engineering from Texas A&M, threw in a bit of American business jargon to describe signs of recovery in oil investment and production.
“The green shoots are definitely here in the U.S., and maybe they are growing too fast,” al-Falih said in reference to his American shale rivals. “I am monitoring the watering of the green shoots.”