Mazrouei sees oil market rebalanced by start of 2022
The UAE’s energy minister on Jan. 13 warned US shale producers to show restraint in the face of rising oil prices, or else risk delaying the market’s rebalancing, which he predicted could otherwise be achieved by the start of 2022.
“All producers need to be careful not to flood the market; if anyone does that then the prices will suffer,” Suhail al-Mazrouei told the Gulf Intelligence Global UAE Energy Forum. “I think [shale oil producers] are wise not to jump the gun and overproduce during the recovery year.”
The OPEC+ alliance itself is not concerned about its market share, he added, as it plans to gradually add supply as demand returns, he added. Every producer’s market share can go back to a “normal” level once the pandemic subsides, he said.
“If every country is looking at market share, we will not balance the market,” Mazrouei said.
OPEC and nine allies, led by Russia, decided in December after days of heated negotiations to ease their stringent quotas by a collective 500,000 b/d for January, instead of the originally scheduled 2 million b/d tapering.
Sources involved in the talks had told S&P Global Platts that Russia, the UAE and Kazakhstan were among the countries advocating for quotas to be relaxed, optimistic about the pace of the market’s recovery and concerned about leaving an opening for US shale producers to fill any supply gaps.
For February and March, Russia and Kazakhstan have been permitted slight increases, while Saudi Arabia, which has consistently opposed arguments in favor of raising production, announced it would institute a voluntary unilateral 1 million b/d cut below its quota. All other countries will maintain their January production levels.
The surprise Saudi cut has boosted oil prices to an 11-month high, with front-month Brent futures surpassing $57/b in early Asia trading before pulling back.
Beyond the first quarter, Mazrouei said the OPEC+ alliance would take a “wait and see” approach to see how the global rollout of vaccines progresses and whether countries experiencing a spike in coronavirus cases are able to bring infection rates down.
“We are not only looking at the supply and demand balance,” he said. “We are working on inventories, the extra inventories buildup that we have seen. We are targeting to reduce that to a normal level which will give confidence to producers.”
“I am optimistic by the end of this year or beginning of 2022 we will see this [supply and demand] balance,” he added.
Mazrouei’s assessment of the market recovery appears on the high side, however.
Rainer Seele, CEO of OMV, which is partially owned by Abu Dhabi’s sovereign wealth fund Mudabala Investment Co., told the conference that global oil demand “will not recover to the 2019 record level of a 100 million b/d in 2021, but mid 2022 that’s a good outlook for my point of view.”
Mele Kyari, head of Nigerian National Petroleum Corp., told the conference: “I do not see demand coming back to pre-COVID levels anywhere earlier than end of 2022.”
COMMITTED TO OPEC+
As for the UAE itself, the country is committed to the OPEC+ alliance, although it is pumping much lower than its 4.2 million b/d installed capacity, the minister said. The UAE pumped 2.57 million b/d of crude in December, according to the latest S&P Global Platts survey of OPEC+ output.
Industry sources had told Platts in November that officials in the country were debating whether to remain within OPEC, with some viewing its continued production cuts as too much of a sacrifice. Mazrouei later issued a statement saying that the UAE was a “reliable and long-standing member of OPEC,” but did not address his country’s future membership.
Abu Dhabi National Oil Co., which pumps the vast majority of the UAE’s crude, has announced plans to spend $122 billion through 2025, including on projects to expand its production capacity to 5 million b/d by 2030.
Mazrouei told the Gulf Intelligence conference that ADNOC’s investments would put the company in an advantageous position in the oil market once the pandemic is contained.
“I am confident that these investments we have put and the type of oil and efficient improvement that ADNOC has done will enable us to compete and will enable us to put those volumes because they will be needed,” the minister said. “Even the whole group, not only the UAE, will be able to tap that market.”