ABU DHABI (Bloomberg) — Crude oil at $50/bbl is too low for most producing countries, according to United Arab Emirates Energy Minister Suhail Al Mazrouei.
Prices have climbed almost 20% to above $50/bbl since the Nov. 30 agreement by the Organization of Petroleum Exporting Countries to cut production for the first time in eight years to curb a global glut. OPEC is reducing output along with 11 other producing nations including Russia after a slump in oil prices the past two years eroded revenue.
Crude at $50 “isn’t going to cut it” for most producers, Mazrouei told an Abu Dhabi energy conference Wednesday. When asked if that level should be a floor, he said: “I will never quote a price because I truly believe we should not target a price.”
Brent crude fell 4 cents to $55.06/bbl at 8:54 a.m. in Dubai, compared with $46.38/bbl at the close on Nov. 29 before the OPEC agreement. Prices have still dropped by about half since 2014 because of a glut created by OPEC and producers outside the group.
During those years of oversupply and low prices, global oil demand has grown faster than expected, Mazrouei said, forecasting that expansion should continue. While complying with output cuts, the U.A.E. will also work to boost its production capacity to 3.5 MMbopd, he said. Its current capacity is 3.15 MMbopd, according to data compiled by Bloomberg.
Oil producers probably don’t want prices to go much above $50/bbl because that would encourage new production, Neil Atkinson, head of the oil industry and markets division of the International Energy Agency, said in a speech at the same conference. By limiting the output cuts to six months, OPEC is sending a signal that it doesn’t want those cuts to stay indefinitely, he said.
Most members of the Gulf Cooperation Council, an alliance of Gulf Arab countries, will need oil prices higher than $50 to balance their budgets in 2017, according to International Monetary Fund data released in October.
The U.A.E. will need a price of $60/bbl, the IMF said. Saudi Arabia and other GCC countries are taking steps to make their economies less dependent on crude oil sales. The only OPEC member in the Middle East and North Africa able to balance its budget with oil below $50 is Kuwait, it said.
The U.A.E. and other GCC members have carried out the output cuts they agreed to, Mazrouei said. Bahrain and Oman are among the non-OPEC countries joining the cuts, and the other four GCC countries are OPEC members.