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No significant inventory draw expected in Q1 2018, says Saudi's Falih

London (Platts)--4 Dec 2017 835 am EST/1335 GMT


No significant oil inventory draws are expected in the next four months, Saudi energy minister Khalid al-Falih said Monday, meaning the global oil markets will not reach balance.

"Our projection is that inventories will not draw significantly in the next four months, just as we have seen in 2017," Falih told reporters at a press conference in Riyadh following talks with his US counterpart, Rick Perry.

"It won't make a dent," he added.

The meeting came after Falih secured a nine-month extension to the OPEC/non-OPEC production cut deal in Vienna last Thursday, allowing the group to continue drawing down inventories.

OPEC and non-OPEC producers still need to contend with supply growth, particularly from US shale producers, making a forecast of the exact rate of stock draws difficult. There was still an estimated 150 million barrels of crude oil in storage that needed to be drained, Falih said.

The coalition had previously stated its aim of bringing OECD oil inventory levels down to their five-year average. OPEC estimated commercial OECD oil inventories stood 140 million barrels above that benchmark as of October. Now Falih is pushing for an even more ambitious target of reducing them by 150 million barrels.

How quickly this happens will be reviewed in June.

"We will wait to see it and will review in June, with the expectation, that unless something unexpected happens, we will not alter our course in the second half of the year", Falih said.

"The outlook of when we will hit a balanced market will be clearer in June and we will start thinking what do we do in 2019," he added.

This will mean looking at how OPEC and non-OPEC producers begin the process of exiting their supply cuts. The exit strategy, still to be devised, will certainly not include opening the taps to release 1.8 million barrels into the market overnight.

"We will have frank discussions on how much actual available spare capacity do they have and will be able to bring back. Some of them are experiencing declines, so it is fair to say some portion of that 1.8 million b/d is involuntary, so will not come back," Falih said.

Saudi Arabia itself has more than 2 million b/d of spare capacity. Having brokered the extension, from January Falih will take over the co-chairmanship of the monitoring committee overseeing the deal, alongside Russian counterpart Alexander Novak, allowing the key pair to continue stewarding the cuts, even after he hands over the rotating OPEC presidency to UAE energy minister Suhail al-Mazrouei.




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