Khalid al-Falih expressed no great alarm Tuesday about the recovery in American oil output since crude prices began rebounding in early 2016, although he indicated surprise at how quickly it bounced back.
The Energy Department said Tuesday that U.S. production averaged 8.9 million barrels a day last year, and it forecast increases to 9.2 million barrels a day this year and 9.7 million — a possible record — in 2018.
In a nod to America’s ability to offset much of the OPEC cuts by pumping oil from shale formations, al-Falih says he is watching the U.S. producers closely.
OPEC, whose members account for about one-third of global oil output, agreed to cut production beginning in January by 1.2 million barrels a day. Other countries joined in, pushing the total to nearly 1.8 million barrels. By independent accounts, those targets have mostly been met, although some producers, like non-OPEC Russia, have fallen short.
“Some have not lived up to expectations,” al-Falih said, “but as a whole if you look at the totality the agreement is working well.”
Oil prices have stabilized above $50 a barrel — a rebound from early 2016, when they plunged below $30 a barrel — although some analysts had expected closer to $60. The U.S. benchmark traded around $53.30 a barrel at midday Tuesday, while the global benchmark traded just above $56.
Saudi Arabia is the world’s biggest producer and is carrying the heaviest load of production cuts. While other OPEC members such as Venezuela and Nigeria are in far worse shape economically, the Saudis too feel the pinch. The kingdom needs the money to pay for social programs, raising questions about how long and how low it will go with production cuts, which expire in July.
In deciding whether to favor extending the cuts, his country will look at global oil inventories as the midyear deadline approaches, al-Falih said. Speaking at a conference known as CERAWeek by IHS Markit, he also said growth in developing nations means that demand for oil will remain strong for the year despite efforts to curb carbon emissions, advances in energy efficiency, and competition from renewable energy.
OPEC Secretary-General Mohammad Barkindo of Nigeria was scheduled to address the conference later in the day.
Al-Falih also said Saudi Aramco’s pending IPO, planned for next year, will knit the state-owned company more closely into the international economy. He highlighted Aramco investments in the U.S., including taking control over a Texas refinery that had been run in a joint venture with Royal Dutch Shell, which said it will get $2.2 billion from Saudi Aramco.
In discussing the U.S. shale rebound, al-Falih, who earned a degree in mechanical engineering from Texas A&M, displayed his mastery of American business jargon such as “green shoots” to describe signs of recovery in oil investment and production.
“The green shoots are definitely here in the U.S., and maybe they are growing too fast,” al-Falih said in reference to his American shale rivals. “I am monitoring the watering of the green shoots.”