Energy

Saudi energy minister Khalid A. Al-Falih: Qatar impact on oil 'insignificant'

Key Points
  • The Saudi-led effort to isolate Qatar won't impact the price of oil much, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, Khalid A. Al-Falih, told CNBC.
  • Al-Falih told CNBC that Qatar was expected to continue to abide by an OPEC deal to cut output, but that its production level wasn't significant.
  • Despite recent higher-than-expected inventory data, Al-Falih said that OPEC's output cuts were helping to clear oil inventories.
Saudi energy minister says he's 'confident' OPEC's strategy is working
VIDEO3:3103:31
Saudi energy minister says he's 'confident' OPEC's strategy is working

The Saudi-led effort to isolate Qatar won't impact the price of oil much, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, Khalid A. Al-Falih, told CNBC.

"Within the energy markets, there is no change," Al-Falih said on the sidelines of meetings in Kazakhstan over the weekend.

Several Saudi-led Arab states abruptly cut off ties to tiny Qatar earlier this month.

Saudi Arabia has issued demands of Qatar, including ending relations with Iran, breaking all ties to the Muslim Brotherhood and expelling all members of Hamas, according to an Al Jazeera report. It also demanded Qatar shut down broadcaster Al Jazeera, which came under cyber attack last week.

The catalyst for the rift was an alleged statement by Qatar's emir that criticized Saudi Arabia and President Donald Trump, who recently visited Saudi Arabia in his first foreign trip, agreeing to new military contracts and a broader economic relationship.

So far, the dispute has had little impact in energy markets, but last week, two Qatari LNG shipments, believed to be U.K.-bound, abruptly changed direction in the Gulf of Aden Thursday, raising speculation that the row will spill more broadly into the global gas market.

But Al-Falih said he didn't expect much of a market impact.

"Qatar is a member of the OPEC organization and is a signatory of the 24-member agreement that has just been extended," he said. "We trust that they will continue to abide, but their overall contribution in terms of the cuts is rather insignificant in the overall scheme of things."

Late last month, OPEC said it would extend an 1.8 million-barrel-a-day cut to oil output by nine months, though March 2018, after the November deal failed to fully clear a global oversupply in oil, which has been keeping prices relatively low. Some non-OPEC producers have also signed on to the deal.

Al-Falih added that he hoped the tensions over Qatar would resolve quickly.

Men work for Iraqi Drilling Company at Rumaila oilfield in Basra, Iraq,
Essam Al-Sudani | Reuters

"But it's not in our hands, it's within the control of the Qatari governments," he said. "We think that the neighbors of Qatar, not only in the GCC, but elsewhere in the Arab world and in elsewhere in the global community, have made it clear what those conditions are."

Overall, Al-Falih expected that the deal to cut output would work to clear oil oversupply, despite a market swoon last week on unexpectedly high inventory data.

Oil stockpiles in the United States surged by 3.3 million barrels in the week ended June 2, the Energy Information Administration said in the middle of last week, confounding analysts' estimates for a 3.5 million-barrel decline and sending oil prices tumbling.

"Weekly data goes up and down. Sentiments in the financial markets of course swing like a pendulum. But that doesn't change the fundamentals," Al-Falih said. "What we can influence as oil producers is the fundamentals, the level of supply which will result in drawing down the inventories."

He was unconcerned by the U.S. spike higher in inventories.

"We've seen the U.S. market pull oil from around the world, which has resulted last week in higher inventory, but it's also created shortage elsewhere," he said, noting that OECD inventories have been falling and around 50 percent of floating storage has been liquidated into global markets.

International Energy Agency data for March, the latest available, showed that total OECD stocks likely fell by around 1 million barrels a day in the month, and it estimated a 700,000 barrel a day drawdown for the second quarter.

"I think we have to give it time," he said, but he also pointed to OPEC's planned meeting in November in which it will also coordinate with key oil producing allies in the output cut pact, including Russia.

"If we find for any reason that we need to adjust the strategy that we have put in place, we will be willing to do that," he said.

Clarification: This article has been updated to reflect the latest IEA data on oil inventory drawdowns in OECD economies.

—Patti Domm and Sam Meredith contributed to this article.

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