The worst is over for oil markets, Saudi Arabia’s energy minister says

Oil markets have overcome the steepest declines in terms of demand but the Opec+ group of producers remains vigilant, Saudi Arabia’s energy minister said on Monday, as oil prices continue to fall on rising coronavirus cases in many countries.

“I guess the worst part is over,” Prince Abdulaziz bin Salman said at the online India Energy Forum by CERAWeek on Monday. “We are very much vigilant. There is a big shift altogether in terms of where we are today and where we were in April and May.”

Opec+, the producer alliance led by Saudi Arabia and Russia, agreed to historic curbs of 9.7m bpd between May and July after the pandemic-induced mobility restrictions forced energy demand to plummet to record lows. The group plans to taper cuts and has been holding back 7.7 million barrels per day from August to help balance demand and supply. Production is set to increase again in January as part of the gradual easing of supply curbs.

“The discipline we put together as Opec+ is very assuring to the market. I would attribute it to everybody who is part of Opec+. This time we were different.”

The group said at a meeting earlier this month that it achieved an overall conformity level of 102 per cent with supply cuts, which is the highest since May, excluding voluntary commitments made by Saudi Arabia, the UAE and Kuwait.

Laggard producers within the group also made up for shortfalls in September by drawing back a total of 249,000 bpd to compensate for earlier overproduction.

“The compensation scheme is to add a serious notion to the enforceability of the agreement [and] supports others to continue their obligation. It also ensures the market trusts the deal and believes in the deal,” Prince Abdulaziz said.

He also argued the producers' group is “not anti-shale”, saying the world needs all forms of energy including shale oil, tar sands, coal, conventional oil and gas and renewables.

Oil prices fell on Monday on demand concerns as coronavirus cases continued to increase in the US and Europe.

Brent crude prices were 3.3 per cent lower at $40.39 per barrel, while key US gauge West Texas Intermediate was 3.4 per cent lower at $38.49 per barrel at 8.47pm UAE time.

Libya’s plans to increase oil production to 1 million barrels per day in the next four weeks also weighed on oil prices.