Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman said on Monday OPEC+ has the ability to handle market challenges through cutting production at any time and in different forms, Trend reports citing Al Arabiya.
He said in an interview with Bloomberg: “OPEC+ has the commitment, the flexibility, and the means within the existing mechanisms of the Declaration of Cooperation to deal with such challenges including cutting production at any time and in different forms as has been clearly and repeatedly demonstrated in 2020 and 2021.”
“Soon we will start working on a new agreement beyond 2022 which will build on our previous experiences, achievements, and successes. We are determined to make the new agreement more effective than before. Witnessing this recent harmful volatility disturb the basic functions of the market and undermine the stability of oil markets will only strengthen our resolve,” he added.
He said the paper oil market has fallen into a “self-perpetuating vicious circle of very thin liquidity and extreme volatility” which undermined the market’s essential function of efficient price discovery and made the cost of hedging and managing risks for physical users prohibitive.
The minister added that this has a negative impact which created new types of risks and insecurities.
“This vicious circle is amplified by the flow of unsubstantiated stories about demand destruction, recurring news about the return of large volumes of supply, and ambiguity and uncertainty about the potential impacts of price caps, embargoes, and sanctions,” he said.
He also addressed the current volatility impacting the functioning of markets. He said that without sufficient liquidity, markets can’t reflect the realities of the physical fundamentals in a meaningful way and can give a false sense of security at times when spare capacity is severely limited and the risk of severe disruptions remains high.
He added: “Nowadays one need not look far for evidence of this. The paper and physical markets have become increasingly more disconnected.”
The energy minister described the market as being in a state of “schizophrenia,” which he said created a type of a “yo-yo” market and sent “erroneous signals” at times when greater visibility and clarity and well-functioning markets are highly needed to allow participants to efficiently hedge and manage the risks and uncertainties they face.