OPEC kingpin Saudi Arabia believes that the energy market has overcorrected in recent weeks.
It comes as the world’s top oil exporter grapples with a sharp drop in crude prices, amid cooling supply fears about the impact of U.S. sanctions on Iran.
Speaking at the Joint Ministerial Monitoring Committee (JMMC) meeting in Abu Dhabi, Saudi Arabia’s Energy Minister Khalid al-Falih stated that “All along we said the market overreaction to the announcement on sanctions was driven by the means of fear rather than by real shortages.”
“Markets get it wrong on occasion as they did a few weeks ago on one side and they’re doing it again on the other today, but ultimately the pendulum would swing to a reasonable middle,” he added.
Saudi Arabia’s energy minister also said that the wider OPEC and the non-OPEC alliance would not shy away from another round of production cuts over the coming week if the group decided there was a need for such action.
The next full OPEC meeting, when any policy decision will be voted on, is scheduled to take place in Vienna, Austria on December 6.
About 2 dozen exporting nations began capping their output in 2017 in a bid to drain a global crude glut. The group agreed to restore some of that output in June, and producers with spare capacity have been pumping more oil since then.
Energy market participants expected Saudi Arabia and Russia to recommend further productions cuts on Sunday. Instead, Riyadh and Moscow went only so far as to suggest that it was just a possibility.
The comments come after a significant drop in oil prices in the recent weeks, as crude futures benchmarks have tumbled approximately 20 % or more since climbing to a peak in early October.
International benchmark Brent crude settled at $70.18 on Friday, down almost 1 %, while US West Texas Intermediate (WTI) fell for the 10th straight session to close at $59.87.
The collapse in prices constitutes a stunning reversal from the last month when crude futures had hit nearly four-year highs as traders braced for potential shortages once US sanctions on Iran came back into force.
Saudi Arabia’s al-Falih said that it had become clear that this previous spike in oil prices was “an emotional overreaction.”
“I think that the decisions that came out in Washington with granting the waivers … (And) with the volumes starting to show themselves and weekly inventory data, the market flipped from overreacting from one side to that on the other side.”
The prospect of looming sanctions against OPEC’s 3rd-largest producer had prompted some investors to bet on Brent soaring above $100 a barrel before year-end. But, any talk of a return to triple-digits has since been evaporated.
Instead, bearish market sentiment has pressured US crude into its longest stretch of daily declines since 1984.
Saudi Arabia, Russia, and the US, the world’s top three exporters have more than compensated for lost Iranian barrels since the start of the month.
In fact, all 3 countries are pumping at or near record highs, with other OPEC members and exporting nations also turning on the taps.
US sanctions on Iran’s oil sector snapped back into place on Nov 5.
It comes as part of a broader effort by Donald Trump’s administration to target Tehran’s nuclear and missile programs as well as curtailing its support for proxy forces in Yemen, Syria and other parts of the Middle East.
The measures target the country’s national airline, Iran Air, and more than 65 % of its aircraft.