(Bloomberg) -- Saudi Arabia’s energy minister said bringing global oil inventories back to their five-year average isn’t the target of OPEC’s output cuts, and the group is yet to accomplish its goal of stabilizing markets.
The rolling five-year average of stockpiles is inflated by the glut that’s been around since 2014, Khalid Al-Falih said in Tokyo on Monday. The objective of production curbs by the Organization of Petroleum Exporting Countries is to bring equilibrium to the market, he said, adding that he’s concerned about lower investment leading to potential shortages in the future.
While the industry is in better shape than in 2016, “we certainly don’t feel we are where we need to be,” Al-Falih said. “We believe we are on our way to restoring energy stability to the markets.”
OPEC, along with its allies such as Russia, seem determined to keep cutting production even after their campaign to rebalance world oil markets has all but eliminated surplus inventories and prices have reached the highest level since 2014. Saudi Arabia, the world’s biggest oil exporter, is urging fellow producers to keep output restrained to fulfill a new priority: encouraging companies around the world to invest more in future supply.
Targets and metrics for OPEC’s curbs will be determined when the producer group meets next month in Vienna, Al-Falih said on Monday. Saudi Arabia is watching investment levels closely to make sure that the pipeline of project flows is sufficient to meet incremental demand, which is “very healthy,” he said, adding that he’s also concerned about tight spare capacity.
He isn’t the only voice warning about a lack of spending on new projects. Influential figures from the International Energy Agency to the boss of oil major Total SA have warned a supply shortage could emerge early next decade after a period of deep cuts in spending. Under-investment could push prices as high as $300 a barrel within a few years, prominent hedge-fund manager Pierre Andurand said recently.
Al-Falih said in April that investment is the “most important metric” for gauging how long OPEC cuts need to continue. The group will examine this proposal along with a “menu” of other possible targets at its next meeting in late June, he had said.
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