The head of the Organization of Petroleum Exporting Countries called on oil producers outside the group to assist in reducing the global oversupply, signaling once again that OPEC won’t make output cuts alone.
“It is vital the market addresses the issue of the stock overhang,” Secretary-General Abdalla El-Badri said Monday at a conference in London. “It should be viewed as something OPEC and non-OPEC tackle together.”
Crude sank to the lowest in more than 12 years this month as supply swamped demand. With OPEC effectively abandoning its output ceiling in December, Russia pumping near record levels and U.S. shale fields proving more resilient than forecast, the global surplus has continued to swell. Yet an agreement between OPEC and rival producers to rein in volumes has proven elusive as all parties seek to maintain their market share.
“It is crucial that all major producers sit down to come up with a solution to this,” El-Badri, 75, said at the Chatham House think-tank. Stockpiles in Organization for Economic Cooperation and Development countries rose to more than 260 million barrels above the five-year average at the end of 2015, he said, adding that the market may start to rebalance this year as demand grows.
Russia, not a member of OPEC, could work with the group on trimming supply if a political decision was taken to cooperate, Leonid Fedun, vice president of Moscow-based oil company Lukoil PJSC, said in an interview with state news agency Tass. Pumping record volumes “is not the best way to improve economics,” he said.
Brent crude, the global benchmark, is down about 16 percent this year as volatility in global markets adds to concern over brimming stockpiles as well as the prospect of additional Iranian exports following the removal of international sanctions. The slump in prices is putting future investment in new oil supply at risk, according to El-Badri.
“New barrels are needed not only to increase production, but to accommodate for decline rates from existing fields,” he said.
Budget cuts among oil and gas companies could reduce investment to “dangerous levels,” Claudio Descalzi, chief executive officer of Italian producer Eni SpA, said Monday at the conference. The global industry will reduce capital spending on exploration and production by 15 percent this year, he said.
OPEC’s de facto leader, Saudi Arabia, is bucking that trend. Saudi Arabian Oil Co., the world’s largest oil business, is spending as much now as it did before the crash in crude prices, Chairman Khalid Al-Falih said Monday.
The kingdom has refused to curtail output as it pursues a strategy to defend market share and pressure rival producers with lower prices. It has said it won’t reverse course unless non-OPEC nations play their part in production cuts, a view backed by El-Badri on Monday.
“Until 2015, all of the supply growth since 2008 has come from non-OPEC countries,” he said, conceding that “this dynamic changed” last year, when OPEC supply grew by about 1 million barrels a day.
El-Badri, a Libyan native, said there are signs supply and demand will start to come back into balance this year. Global demand is forecast to increase by about 1.3 million barrels a day while non-OPEC supply is expected to contract by about 660,000 a day, he said.
OPEC member Qatar echoed that view. Energy Minister Mohammed Al Sada, speaking at the same London conference, said prices will recover as they’re currently “unsustainable,” not only for unconventional oil fields but for conventional crude production too.
OPEC member Venezuela has written to fellow OPEC states requesting an emergency meeting to address the price rout, five people with knowledge of the matter said last week. The request is being evaluated, Al Sada said Monday in an interview.
Venezuela has repeatedly called for OPEC to meet as slumping prices sap government revenue. Holding such a summit would require approval from all member countries.