Acknowledging Demand Risks, OPEC+ Ministers Maintain Production Strategy

As crude prices sink again, completely erasing the surge caused by attacks on Saudi Arabia, OPEC+ ministers acknowledged the growing risks to oil demand but gave no indication of a change in strategy.

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“Of course, demand is affected by the status of the global economy, and the economy is slowing down,” Russian Energy Minister Alexander Novak said in Moscow. “There are no crisis events that call for an emergency meeting.”

Less than three weeks after missile and drone strikes on Saudi Arabia’s main oil facility caused a record price spike, crude has slipped below $60 again in London. The kingdom has now stabilized output back at pre-attack levels and investors are once again turning their focus to signs of an economic slowdown.

Just these last few days have brought a surprise increase in America’s crude stockpiles, signs of stagnation in the euro-area economy and slowing growth in U.S. payrolls.

Recessionary Forces

“There are some concerns about recessionary forces,” said Saudi Energy Minister Prince Abdulaziz Bin Salman, who was appearing alongside Novak at the Russian Energy Week conference in Moscow. “There is a gloomy picture that has been drawn.”

However, the minister added that many assumptions about the economy were too pessimistic.

“There are things that are real, and things that are perceived. We are driven by negative expectations,” Prince Abdulaziz said. “On the demand side, yes it’s been lower, but people need to understand that supply also may become lower” than current forecasts.

The Organization of Petroleum Exporting Countries and its allies, collectively known as OPEC+, are scheduled to meet again in the first week of December. Their current agreement for production cuts of 1.2 MMbpd expires at the end of March, and the group may come under pressure to extend or deepen those curbs if the outlook for oil demand worsens.

“The market is well balanced now as far as demand and supply are concerned,” said Novak. “We are monitoring the situation” and if circumstances change “there are all the necessary tools available,” he said.

The International Energy Agency, which advises developed economies on energy policy, currently sees global demand expanding by 1.1 MMbpd this year and 1.3 million in 2020, well below the anticipated increase in supply. The IEA’s consumption estimates may be revised even lower, Executive Director Fatih Birol said this week.

The outlook for oil demand in 2020 will be “very challenging,” Nigerian Oil Minister Timipre Sylva said at the same event in Moscow. The group may discuss the future of its production cuts in December, he said.


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