Two of OPEC’s leading ministers said its plan to rebalance the oil market will only work if Russia and other countries outside the group follow through on their commitments to rein in production.
A global cut of 1.8 million barrels a day would be enough to balance the market, United Arab Emirates Energy Minister Suhail Al Mazrouei said on Wednesday. With the OPEC planning to reduce output by 1.2 million barrels a day, non-OPEC nations must share the burden by cutting 600,000 of their own, he said. Supply and demand should be balanced by mid-2017, his Nigerian counterpart Emmanuel Ibe Kachikwu said.
The two spoke as ministers from the Organization of Petroleum Exporting Countries prepare to meet representatives from non-OPEC countries on Saturday in Vienna. Russia, which has never voluntarily cut production, is emerging as the key to ensuring that the output decision OPEC took last month will have a lasting impact on the market as producers look to drain record global inventories.
If the decrease in OPEC production doesn’t stop prices from falling to $40 or $50 a barrel, “we will meet again and we will discuss with non-OPEC and we will take the right measures,” Al Mazrouei said at a Bloomberg conference in Abu Dhabi.
Russia has pledged to trim output by 300,000 barrels a day, and OPEC members will discuss additional reductions with Mexico and other suppliers. The group decided to pump less oil for six months starting Jan. 1 to try to support prices, which fell by about half from their 2014 peak. Benchmark Brent crude was 23 cents lower at $53.70 a barrel in London at 12:22 p.m. local time.
“I want to believe Russia means well and will actually deliver on the promises it’s made,” Kachikwu, Nigeria’s Minister of State for Petroleum Resources, said at the Bloomberg conference. “Everybody sees the urgency” of meeting their obligations to pump less oil, and it would be fine for non-OPEC countries to curb production by more than 600,000 barrels a day, he said.
OPEC will reduce its output even if no independent producers other than Russia make cuts of their own, Kachikwu said.
The oil market will be slightly oversupplied in the first half of 2017 but should be in balance by the middle or latter part of the year, the Nigerian minister said. Crude should trade next year at a per-barrel price ranging from the high $50s to the low $60s, he said.
Prices should rise from current levels if non-OPEC producers agree to cut at the Saturday meeting, and six months of lower output should be enough to balance the market, the U.A.E.’s Al Mazrouei said.
A “reasonable” crude price would provide an incentive for companies to invest in exploration and production to ensure future supply, he said.
OPEC agreed on Nov. 30 to reduce its collective output for the first time in eight years, reversing a Saudi-led policy of pumping without limits to defend sales against an increased supply of higher-cost output, including some from shale deposits in the U.S.
“Shale will come back if the price is right,” Al Mazrouei said. Kachikwu shared this view, saying, “Shale is always a worry.”
OPEC exempted Nigeria, along with Libya, from having to cut its production due to conflict in the West African nation’s main oil-producing region.
Nigeria is pumping 1.8 million barrels a day and could achieve daily output of 2.1 million barrels of crude and condensate by next month, Kachikwu said. The U.A.E. produced 3.13 million barrels a day in November, according to data compiled by Bloomberg.