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Too early to decide on extending OPEC's production cut deal: UAE minister

Abu Dhabi (Platts)--11 Jan 2017 835 am EST/1335 GMT


As OPEC producers begin cutting back their output, UAE energy minister Suhail al-Mazrouei said Wednesday producers were committed to making the necessary cuts, but it was premature to discuss whether the arrangement would be extended beyond the initial six months outlined in November.

Speaking at an energy event in Abu Dhabi, Mazrouei said producers from the Gulf Cooperation Council -- which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE -- have all started talking with their customers about reduced volumes.

"They already know what to expect," Mazrouei said, adding that this gave him confidence that the cuts were being implemented, and there was no need to be skeptical about this.

This was not a "show me" scenario, he said, while also calling on the producers to be "vocal" about their cuts to bring total OPEC output down by 1.2 million b/d.

Saudi Arabia pledged to take on the biggest burden of production cuts, slashing output by 486,000 b/d, but there has so far been little indication from the kingdom of current output levels.

Kuwait announced earlier this month it had closed down as many as 90 oil wells to bring its production down by 131,000 b/d, while non-OPEC producer Oman has also begun cutting production by 45,000 b/d since January 1. The UAE's contribution is to cut production by 139,000 b/d, from just over 3 million b/d.

HEALTHY DEMAND, UPSIDE SURPRISES

Mazrouei also briefly addressed the outlook for prices and demand. "I think we have seen a healthy demand growth in the last year, and I think that demand will continue," he said.

OPEC's cut deal was not concluded seeking a certain price for crude, he added.

"It's more complicated than just fixing it for a certain price. We tried $50/b for some time, but it did not persuade the investors to draw back," he said.

"Fixing the price is not going to work because we are not alone in the market... What works is allowing that healthy competition to continue," he added.

"We did not do it purely for the price. We did it because we are concerned about the level of investment and sustainability of this industry. If we did it purely for the price we would have waited six months," he added. Mazrouei noted that there could be some "upside surprises" in the first half of the year as some countries have pushed production beyond sustainable levels, meaning their output could begin to decline. He did not give any examples, however.

Rising production from Iran, which was left out of any real cuts in output under the November 30 OPEC deal, was not a major concern for the minister.

"Iran is a partner in OPEC and we need the collaboration of everyone," he said.

An S&P Global Platts survey of OPEC and oil industry officials and analysts showed Tuesday Iranian output was stable at around 3.69 million b/d in December, signaling significant production rises may have stalled as its mature oil fields urgently need investment and new technology to boost output.

--Tamsin Carlisle, tamsin.carlisle@spglobal.com

--Adal Mirza, adal.mirza@spglobal.com

--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com




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