The OPEC secretary-general has called on the world’s largest oil producers to help arrest the worst price collapse in decades, as one of Russia’s biggest oil companies said it would not oppose joining the group in output cuts.
Abdalla El-Badri said future oil production would falter unless countries both inside and outside OPEC cooperated to end a supply glut that has hammered prices 70 percent lower in 18 months, leading to widescale cuts in investment and jobs in the industry.
“It is crucial that all major producers sit down to come up with a solution to this. The market needs to see inventories come down to levels that allow prices to recover and investments to return,” El Badri said at London’s Chatham House.
“This is not only crucial for producers, but consumers too. The world desires more oil, and this means more investment.”
The OPEC secretary-general is only the titular head of the group and holds little direct sway over policy, but his comments come as the global oil industry is increasingly concerned by the prolonged nature of the sell-off.
Since the beginning of 2016 oil prices have fallen another 15 percent, unnerving stock markets worldwide due to fears that an oil industry slump could lower growth in the wider economy and lead to a deflationary spiral. Brent, the international oil benchmark, was down 4.9 percent at $30.60 late in London on Monday.
Saudi Arabia, the world’s largest oil exporter, has shown little sign of deviating from its policy of keeping output high to squeeze out higher-cost producers. But one of its key conditions of considering output cuts came a quarter-step closer on Monday.
Leonid Fedun, vice-president of Lukoil, Russia’s second-largest oil producer, said he would not oppose joining output cuts if they received political backing in Moscow. Saudi Arabia has said it will consider cutting production if joined by the largest producers outside OPEC, like Russia.
“In my opinion, if such a political decision is taken, Russia should jointly work with OPEC to cut supply to the market,” Fedun was quoted as saying in an interview with Tass news agency. “It’s better to sell one barrel of oil at $50 than two barrels at $30.”
Russian officials have previously said it could not tell private companies to cut production and has seen output rise to a post Soviet-era high well above 10 million barrels a day, pumping roughly one in every nine barrels in the world.
But Moscow has continued to hold occasional meetings with Saudi Arabia during the price collapse as its economy has come under growing strain. Russia’s largest oil producer, Rosneft, is controlled by the Kremlin.
The industry still sees many high barriers to a coordinated output cut. OPEC member Iran is preparing to raise exports after sanctions were lifted.
Speaking at Chatham House, the chief executive of Italian energy major Eni warned financial speculators were able to exert an outsized influence over oil prices with no one currently prepared to take responsibility for managing the market.
“Oil prices are being strongly dominated by volatile short-term views and driven by financial markets,” Descalzi said, alluding to hedge funds that have built up a record large position betting against the oil price in recent weeks.
“The lack of a regulator — the role played before by OPEC — which balanced oil prices and gave a long-term perspective, has resulted in the market being handed over to short-term positions.”
El-Badri, a Libyan who has served as OPEC secretary-general for almost nine years, said while lower prices would likely see non-OPEC production drop off this year, countries outside the group had to bear responsibility for the glut.
He said non-OPEC supply had risen almost five million barrels a day since the start of 2013, led by US shale. He said OPEC’s output had fallen by 1m b/d in 2013-14, before recovering last year.
“The majority of this has come from non-OPEC countries,” El-Badri said. ”It should be viewed as something OPEC and non-OPEC tackle together.”