Saudi Energy Minister Khalid al-Falih said on Friday that the global market has the capacity to absorb higher oil prices, after crude hit the highest level in more than three years.
“I have not seen any impact on demand with current prices. We have seen prices significantly higher in the past -- twice as much as where we are today,” Falih told reporters ahead of an oil producers’ meeting in Jeddah, Saudi Arabia.
“Energy intensity as you know has declined significantly ... this reduced energy intensity and higher productivity globally of energy input leads me to think that there is the capacity to absorb higher prices,” Falih said.
Falih insisted the Organization of Petroleum Exporting Countries (OPEC) does not have a price target for oil.
“We never have a price target ... Prices are determined by the market,” said Falih who warned against the danger of price fluctuations, saying that “volatility is our enemy.”
Speaking at the same meeting of OPEC and non-OPEC oil producers, UAE Energy Minister Suhail al-Mazrouei said his main concern was stability.
“We don't have a target price, our target is market stability,” Mazrouei said.
OPEC producers and non-OPEC countries struck a deal in 2016 to trim production by 1.8 million barrels per day to reduce a global glut of oil.
The deal, which is due to run out at the end of this year, has succeeded in boosting oil prices above $70 a barrel from below $30 a barrel in early 2016.
The recovery has also been fueled by geopolitical tensions, US President Donald Trump’s threat to reimpose nuclear-related sanctions on Iran and production problems in Venezuela, Nigeria and Libya.
Benefitting from the higher prices, US oil producers have ramped up drilling, pushing domestic output to a record 10.5 million barrels a day last week, according to data from the US Energy Information Administration.
The United States had already eclipsed Saudi Arabia as the world’s second largest crude producer with the OPEC kingpin pumping just under 10 million bpd while meeting its agreed production cuts.
Second week of gains
Oil prices were set for a second consecutive week of gains on Friday, buoyed by tightening supplies and continued support from OPEC and its allies on supply cuts.
Brent crude oil futures were at $74 per barrel at 0958 GMT, up 22 cents from their last close.
US West Texas Intermediate (WTI) crude futures were up 21 cents at $68.50 a barrel.
Both Brent and WTI hit their highest levels since November 2014 on Thursday, at $74.75 and $69.56 per barrel respectively.
Saudi oil minister Khalid al Falih said OPEC and its allies were still far away from reaching their target and that a drawdown in oil inventories needed to continue.
Moscow committed to a deal
Russian Energy Minister Alexander Novak told his OPEC and non-OPEC counterparts in a closed-door meeting in the Saudi city of Jeddah on Friday that Moscow was committed to a deal on cutting oil supplies until the end of 2018, sources told Reuters.
The sources spoke after Russia’s TASS news agency cited Novak as saying that OPEC and non-OPEC countries might ease oil production cuts as early as this year.
OPEC and its allies have been curbing production since 2017, helping push up prices. The deal to cut is currently scheduled to expire at the end of 2018.
A technical OPEC and non-OPEC committee meeting in Jeddah on Thursday, ahead of Friday’s ministerial meeting, found that a global overhang in oil inventories, which the deal has targeted for eliminating, has virtually disappeared.
“Even if OPEC were to reach its target of reducing oil inventories to their recent five-year average by the next official June meeting, Saudi Arabia is driving a strong agenda to maintain cuts for the balance of 2018,” BNP Paribas global head of commodity market strategy Harry Tchilinguirian told the Reuters Global Oil Forum.
Firm demand was also giving prices a floor.
“Global oil demand data so far in 2018 has come in line with our optimistic expectations, with Q1 2018 likely to post the strongest year-on-year growth since Q4 2010 at 2.55 million barrels per day,” US bank Goldman Sachs said in a note published late on Thursday.
Beyond OPEC’s supply management, crude prices have also been supported by an expectation that the United States will re-introduce sanctions on OPEC-member Iran.
“The first key geopolitical issue is the expiration of the current US waiver of key sanctions against Iran,” said Standard Chartered Bank in a note this week.