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Saudi Arabia Says Oil-Supply Cuts May Be Prolonged if Necessary

OPEC may need to extend production cuts past the June target if inventories remain excessive.

Saudi Arabia Says Oil-Supply Cuts May Be Prolonged if Necessary

According to Saudi Arabia’s Energy Minister, Khalif Al Falih, oil production curbs will have to go on longer than expected if inventories are still higher than the five-year average.

Khalif Al Falih said if the markets do not have an optimistic outlook about the overall health of the world’s oil industry, the cuts would have to continue.

He added, “We want to convey to them that we are going to do whatever it takes to bring the industry back to a healthy situation.”

Members of the oil-exporting bloc will meet on May 25 to decide whether to extend its production cuts whose objective was to resolve a slowdown that had heavily impacted the economies of energy exporters globally.

Al Falih pointed that this approach aimed at shifting global markets in the right direction.

So far, Saudi Arabia has made the biggest cuts in oil production, slowing down its total output to10.011 million barrels a day in February, significantly lower than what OPEC members had agreed at 1.39 million barrels a day.

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Brent crude climbed 0.3 percent to $51.87 on Friday.

The Saudi energy minister however insisted that other members of the bloc were committee to reducing output and said that any slowdown in compliance was part of the journey to significant production cuts.

He explained, “Some members are trying to iron out the process of production control, as they have never done that before and I believe that they are sincere in their effort.”

In the U.S., rising oil prices resulting from OPEC’s decision to cut production have encouraged greater investment in shale. This could signal the start of anther increase in production that could pose as a barrier to OPEC’s efforts of rebalancing the market.

Speaking about happenings in the shale industry, Al Falih said, “Certainly, I have made it clear that excessive production coming from shale about three or four years ago cannot be absorbed into the global market.”

He added, “We will see the levels of production in that industry. We hope the levels produced will be manageable.”

A sudden price slump would have adverse implications for the government owned Aramco Oil Company in Saudi Arabia, which is set to debut its highly anticipated IPO in 2018.

The government is yet to decide where it will list Aramco, the largest company in the world.

According to government reports, the oil company is worth more than

$2 trillion, a figure that is twice what industry experts say the company is actually worth.

Al Falih however insisted that Aramco is a ‘fantastic company’ but that the market would eventually determine its true worth.

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