Saudi Arabia sees signs of “thriving” demand in the oil market after the collapse triggered by the pandemic, the kingdom’s oil minister said on Monday.
Prince Abdulaziz bin Salman said Saudi Aramco, the state oil company, was now able to increase its export prices for July across every region, and most notably in Asia, which has seen a big rebound in demand as China lifts measures to limit the spread of coronavirus.
The pricing decision, announced on Sunday, was a sign that “demand is coming back and thriving,” the minister said, after the virus hit global consumption of oil by as much as 30 per cent.
The kingdom is keen to keep oil’s nascent recovery from April’s 18-year lows intact, with producer economies seeing their government revenues take a massive hit in recent months.
The son of Saudi Arabia’s king was speaking days after Opec and Russia agreed to extend their production cuts of nearly 10m barrels day until the end of July.
The one-month extension builds on a deal struck in April for 9.7m barrels a day of cuts, which ended a sector price war that coincided with a dive in oil demand as governments imposed lockdowns.
Even as the so-called Opec+ group decided to prolong the biggest ever deal to curb supplies, Prince Abdulaziz on Monday confirmed a Financial Times report that Saudi Arabia would abandon the extra cuts it pledged last month.
The confirmation nudged oil prices lower on Monday, with global benchmark Brent crude down 1.5 per cent to about $41.66 a barrel. West Texas Intermediate, the US marker, fell 1.6 per cent to $38.91.
The kingdom will unwind the additional production cuts of 1m b/d, as it is increasingly confident in the outlook for the oil market. Prince Abdulaziz said the additional cut had served its purpose.
But he warned there were still big questions over the pace at which inventories will be drawn down, given uncertainty over the medium-term outlook for demand and cuts in supply from producers outside of Opec+.
Production in the US, for example, could rise as much as 20 per cent between now and the end of August, say analysts, as wells that were shut down during the recent price crash are brought back on stream.
The Opec+ group is also contending with resurgent production from Libya and countries such as Iraq and Nigeria that have not fulfilled their shares of cuts for May and June.
Prince Abdulaziz said the “re-emergence” of Libyan supply was one of the issues discussed on Saturday, along with a compensation mechanism for countries that had not fully complied with their cuts. But any such mechanism would not be enforced.