Worried by a drop in oil prices and rising supplies, the Organization of the Petroleum Exporting Countries and non-OPEC countries such as Russia agreed in December to return to production cuts in 2019.
The producers meet on April 17-18 to review the pact.
OPEC Secretary General Mohammad Barkindo, in comments to Reuters, did not rule out more action if industrialized nation stocks continued to rise above the five-year average.
“We remain focused on the supply-demand balance,” Barkindo told Reuters TV at the World Economic Forum in Davos. “Our challenge is to maintain supply-demand balance.”
“We have seen inventories rising beyond the five-year average. A couple of months ago we have seen a deficit. We intend to ensure stocks remain within the five-year average.”
A recovery in oil prices this year will boost hopes among producers that the deal to cut supplies, which began on Jan. 1, is working. Oil LCOc1 has risen to above $60 a barrel, after a dip below $50 at the end of 2018.
But oil stocks in OECD nations – used as a yardstick by the producers to gauge the effectiveness of their supply cuts – were above the five-year average in November.
The producers, known as OPEC+, pledged to lower output by 1.2 million barrels per day (bpd) from Jan. 1. OPEC’s share is 800,000 bpd.
Barkindo said producers were making significant oil production cuts to avoid a build-up during the first quarter, and the oil market had reacted well.
Top exporter Saudi Arabia made unilateral cuts to its own output in December, ahead of the start of the deal.
“We have seen aggressive cuts by leading producers to avoid a resurgence of inventories of Q1,” he said. “We are pretty satisfied with the response of the market.”
OPEC and its allies have cut output since 2017 to support oil prices, while watching producers in the United States, which is not party to the cuts, drive up production.
While this has raised concern that the OPEC-led action will be ineffective, Barkindo said continuous gains in U.S. output could not last.
“I will agree that most analysts underestimated the surge in U.S. production, in particular shale,” he said. “We have been meeting U.S. companies but we are hearing this surge cannot be sustained in the mid-term.”