- Last November, OPEC and 10 non-OPEC producers led by Russia agreed to extend cuts to their oil output in an attempt to push prices higher.
- Starting in mid-2014, a slide in global demand combined with a boom in U.S. shale production to severely undercut prices.
Oil markets still have not completely balanced supply against demand yet but 2018 will be the year when they achieve this, United Arab Emirates' (UAE) energy and industry minister said Thursday.
Speaking to CNBC at the 9th Gulf Intelligence UAE Energy Forum in Abu Dhabi, Suhail al-Mazrouei said progress was being made, but there's more that must be done.
"The market fundamentals in 2017 have been good but we're looking forward to seeing another healthy year of production in 2018," he said. "The concern is to achieve that balance between supply and demand, and we're not there yet."
But al-Mazrouei believes this year could see the oil markets finally achieve an equilibrium.
"I am expecting that we will still see corrections in 2018 and I think it's the year of ... the market fully achieving the balance," he said.
Last November, OPEC and 10 non-OPEC producers led by Russia agreed to extend cuts to their oil output in an attempt to push prices higher. Starting in mid-2014, a slide in global demand combined with a boom in U.S. shale production to severely undercut prices.
The OPEC/non-OPEC deal is due to run out in December 2018, although the producers will review the agreement at the next producers' meeting in June to assess how it is impacting oil prices and global crude stockpiles.
Al-Mazrouei said the markets had further to go, however.
"I have no doubt that the market needs further correction. We still have more a than 100 million barrels that needs to be taken care of." He added that the recent rise in oil prices showed market sentiment was good, but that the correction in the market was a work in progress.
"There is of course a positive market sentiment that we're seeing today ... The market is balancing and this is what we're saying, the issue is the timing and how long it will take," he said.
Oil supply data have shown that OPEC members have largely complied with the agreement to curb oil output, although members Nigeria and Libya are exempt from the deal. Al-Mazrouei said the adherence to the agreement had been a positive sign of collaboration between the group and non-OPEC producers.
"The compliance level is important to me," he said. "We achieved 122 percent compliance together and I am confident this will continue. So this group has started something never seen before and they were complying at a difficult time and my expectation is that this compliance will continue to be very strong for the full year" he said.
Oil prices were hovering near three-year highs Thursday, supported by a surprise drop in U.S. production as well as lower crude inventories. U.S. West Texas Intermediate crude futures were at $63.51 at 5:30 a.m. London time while benchmark Brent crude futures were trading at $69.11 a barrel.
Al-Mazroui said that once markets were moving toward a clearing of excess oil supply, investment would be in focus.
"The other question is whether we have enough investments, do we have enough coming to the market to bring the new oil that the world is needing in terms of demand growth … The expectation for next year in terms of global growth is strong, so then the expectation is to have new investments coming to the market."
However, al-Mazrouei cautioned that data showing that demand was robust reflected the cyclical nature of oil demand.
"We need to take into consideration that we're in the winter, and typically in the winter the demand is higher. In the second quarter you could see some softening, some refineries go to maintenance. You see demand changes during the year, so the cyclic event of supply and demand is something we see every year," he said.
Mazrouei's comments are his first since the UAE assumed the presidency of OPEC, the major 14-member oil producing group, in 2018.