Riyadh: Uncertainty in the global economy is limiting “clarity” about the outlook for oil markets and means the “sensible and only course of action” for Opec-plus is to stick to the production pact agreed last October, Saudi Energy Minister Prince Abdulaziz bin Salman said in an interview with Energy Intelligence this week.

The minister also commented on market interventions by consumer nations such as the G7 price cap on Russian oil and the proposed Nopec bill in the US, and on tight global oil production capacity.

The full text of the interview follows:

Q: Opec-plus decided in October to reduce production by 2 million barrels per day until the end of 2023. Given the current macroeconomic and oil market developments, in your view, would it be possible for Opec-plus to reverse course and increase production?

A: There are many factors influencing market sentiment. The global economy is forecasted to continue growing this year and next year, but there is still uncertainty around the pace of growth. Moreover, China has just started to rebound after extended Covid lockdowns, but the duration for recovery is still unclear. Economic recovery is generating inflationary pressures, and this could prompt central banks to intensify their efforts to tame inflation.

The interplay of these and other factors limits clarity, and the sensible and only course of action in such an uncertain environment is to maintain the agreement we struck last October for the rest of this year and that is what we intend to do. We need to ascertain that the positive indicators are sustainable.

There are those who continue to think that we would adjust the agreement before the end of year. For those I say they need to wait until Friday, Dec. 29, 2023 to demonstrate to them our commitment to the current agreement.

Q: What are your views on the US Congress reintroducing the Nopec bill, as well as the G7 price cap on Russian oil, and the potential implications for the oil market? Do you think price caps could be applied beyond their existing scope?

A: Nopec legislation and extending the price cap are very different, but their potential impacts on the oil market are similar. Such policies add new layers of risk and uncertainty at a time when clarity and stability are most needed.

I must reiterate the view I made on record back in August and September on how such policies would inevitably exacerbate market instability and volatility, and would negatively impact the oil industry. In contrast, Opec-plus has made every effort and succeeded in bringing significant stability and transparency to the oil market, especially compared to all other commodity markets.

The Nopec bill does not recognize the importance of holding spare capacity and the consequences of not holding spare capacity on market stability. Nopec would also undermine investments in oil capacity and will cause global supply to fall severely short of future demand. The impacts will be felt all over the world on producers and consumers alike, as well as on the oil industry.

The same holds for price caps, whether imposed on a country or a group of countries, on oil or any other commodity. This will lead to individual or collective counter-responses with intolerable consequences in the form of massive volatility and instability. So if a price cap were to be imposed on Saudi oil exports, we will not sell oil to any country that imposes a price cap on our supply, and we will reduce oil production, and I would not be surprised if others do the same.

Q: Energy Intelligence estimates that global spare capacity is around 2.5 million b/d. Are you concerned about spare capacity, and what is the kingdom doing about it?

A: Spare capacity and global emergency stocks are the ultimate safety net for the oil market in face of potential shocks. I have repeatedly warned that global demand growth will outpace current global spare capacity, while emergency reserves are at a historic low.

That is why it is crucial that policies are put in place to support investments needed to increase spare capacity in a timely manner, and that global emergency stocks are maintained at an adequate and comfortable level.

In Saudi Arabia, we have proactively embarked on expanding our capacity to 13.3 million b/d by 2027. The expansion is already under way in the engineering phase and the first increment is expected to come onstream in 2025.