Saudi Arabia’s energy minister said on Friday that the world economy had the “capacity” to absorb higher prices, the day after crude hit the highest level since 2014.
Khalid al-Falih, who has led Opec’s 1.8m barrel a day supply reduction deal with Russia, said that while the kingdom was not targeting a specific price, it had little fear current levels above $70 a barrel would cut into rising consumption.
“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,” Mr Falih told a technical meeting in Jeddah to review the impact of the cuts.
“Energy intensity as you know has declined significantly, most economies are taking much less energy to generate a unit of GDP as they did 20 or 30 years ago. So this reduced energy intensity and higher productivity globally . . . leads me to think there is the capacity to absorb higher prices.”
His comments are the latest sign that Saudi Arabia, Opec’s de facto leader, has little intention of backing away from supply cuts even as the oil market has tightened.
Russia, however, has appeared more reticent to signal the cuts will continue indefinitely.
Alexander Novak, the Russian energy minister, told state-owned news agency Tass that they could still decide to begin rolling back the production cuts as early as this year, though he later said he wanted the deal to continue.
The supply deal is officially due to expire at the end of 2018 but its extension is widely expected to be under discussion at the next meeting of Opec ministers and large producers in June.
Russia’s co-operation has been key to the deal but it has appeared more cautious about the risk of pushing prices too high, with output from the US shale industry back to growing at a rapid pace.
The group of major oil producers is, however, being given a helping hand by troubles in some members such as Venezuela, whose production has fallen rapidly due to an economic and political crisis in the company.
Opec and Russia said after the meeting that compliance with the 1.8m b/d cuts had reached 149 per cent — implying that output reductions through the deal were closer to 2.7m b/d or roughly 3 per cent of global oil demand.
The so-called Joint Ministerial Monitoring Committee said it would be looking at “different metrics” to measure the impact of the cuts, confirming they have shifted focus from purely drawing down inventories.
The International Energy Agency said last week Opec was close to being able to declare “mission accomplished” in its stated aim of reducing oil inventories that had bloated during the 2014 crash, which drove prices briefly below $30 a barrel from above $100 at the beginning of the decade.
Mr Falih said producers in the deal needed to be careful not to “jump the gun”, saying Opec wanted to encourage investment in future supplies.
“My guidance to you all is to be patient. Us too as producers should be patient. We shouldn’t jump the gun. We shouldn’t be complacent and listen to the noise that mission accomplished . . . we still have work ahead of us.”
Brent crude oil was up 0.3 per cent at $73.98 a barrel in early London trading, having hit a four-year high of $74.75 a barrel in the previous session.