* Falih says there is consensus to drive down inventories
* Ministerial panel recommends continued monitoring of
market
* OPEC, allies meet in June to decide production policy
* Russia's Novak: option of easing cuts was discussed
* Falih says rollover of curbs in H2 main option
(Updates with Saudi, Russia comments after panel meeting)
By Rania El Gamal and Vladimir Soldatkin
JEDDAH, Saudi Arabia, May 19 (Reuters) - Saudi Energy
Minister Khalid al-Falih said on Sunday there was consensus
among OPEC and allied oil producers to drive down crude
inventories "gently" but his country would remain responsive to
the needs of what he called a fragile market.
Falih said a possible rollover in the second half of 2019 of
output curbs agreed by OPEC and non-members was the main option
discussed at a ministerial panel meeting during the day but
"things can change by June".
"This second half, our preference is to maintain production
management to keep inventories on their way declining gradually,
softly but certainly declining towards normal levels," he told a
news conference after the panel meeting.
OPEC, Russia and other non-member producers, an alliance
known as OPEC+, agreed to reduce output by 1.2 million barrels
per day (bpd) from Jan. 1 for six months, a deal designed to
stop inventories building up and weakening prices.
Russian Energy Minister Alexander Novak earlier said an
easing of cuts had been discussed and the supply situation would
be clearer in a month, including from countries under sanctions.
Two sources said Saudi Arabia, OPEC's de facto leader, and
Russia were discussing two main scenarios for June's OPEC+
meeting and that both frameworks proposed higher output from the
second half.
One scenario was to eliminate over-compliance with agreed
cuts, which would increase output by some 0.8 million bpd, while
the other option was to ease the agreed cuts to 0.9 million bpd.
Falih told reporters the market was "very fragile" with
conflicting data due to concerns about supply disruptions while
inventories rise, but that a "comfortable supply situation"
should be seen in weeks and months to come.
He said high compliance with the agreed cuts was not
sustainable and that over-conformity by some countries "can be
reversed in June".
The minister said that if a decision were taken at that
meeting to roll over cuts, then Saudi Arabia would stay within
those limits. He said the kingdom's oil output in May and June
was planned to be 9.8 million bpd.
"It is critical that we don't make hasty decisions – given
the conflicting data, the complexity involved, and the evolving
situation," Falih said, describing the outlook as "quite foggy"
due in part to a U.S.-China trade dispute.
"But I want to assure you that our group has always done the
right thing in the interests of both consumers and producers;
and we will continue to do so," he added.
Falih said Saudi oil output in July would remain within its
OPEC production target.
United Arab Emirates Energy Minister Suhail al-Mazrouei had
told reporters that producers were capable of filling any market
gap and that relaxing supply cuts was not "the right decision".
Mazrouei said the UAE did not want to see a rise in
inventories that could lead to a price collapse. He said OPEC's
job "is not done yet" and that there was no need to alter the
agreement in the meantime.
U.S. crude inventories rose unexpectedly last week to their
highest since September 2017, Energy Information Administration
data showed.
DELICATE BALANCE
Saudi Arabia sees no need to boost production quickly now,
with oil at around $70 a barrel, as it fears a price crash and a
build-up in inventories, OPEC sources said. The United States,
not a member of OPEC+ but a close ally of Riyadh, wants the
group to boost output to lower oil prices.
Falih has to find a balance between keeping the oil market
well supplied and prices high enough for Riyadh's budget needs,
while pleasing Moscow to ensure Russia remains in the OPEC+
pact, and being responsive to the concerns of the United States
and the rest of OPEC+, sources said.
Iran's oil exports are likely to drop further in May and
Venezuelan shipments could fall again in coming weeks due to
U.S. sanctions.
Falih said oil demand in Asia had picked up, while demand in
the United States for Saudi crude had dropped. He said nobody
knew what Iran was producing or exporting, adding that he
believed "a lot" of Iranian oil was unaccounted for.
Oil contamination forced Russia to halt flows along the
Druzhba pipeline - a key conduit for crude into Eastern Europe
and Germany - in April, leaving refiners scrambling for
supplies.
Novak said Russia would restore its output in May and that
contaminated oil would not affect its annual output forecast.
OPEC's agreed share of the cuts is 800,000 bpd, but its
actual reduction is far larger due to the production losses in
Iran and Venezuela. Both are exempt from the voluntary
reductions under the OPEC-led deal.
REGIONAL TENSIONS
Oil prices edged lower on Friday due to demand fears amid a
standoff in Sino-U.S. trade talks, but ended the week higher on
concerns over disruptions in Middle East shipments due to
U.S.-Iran political tensions.
Tensions between Saudi Arabia and Iran are running high
after last week's attacks on two Saudi oil tankers off the UAE
coast and another on Saudi oil facilities inside the kingdom.
Riyadh accused Tehran of ordering the drone strikes on oil
pumping stations, for which Yemen's Iran-aligned Houthi group
claimed responsibility. The UAE has blamed no one for the tanker
sabotage. Iran has distanced itself from both sets of attacks.
“Although it has not affected our supplies, such acts of
terrorism are deplorable," Falih said. "They threaten
uninterrupted supplies of energy to the world and put a global
economy that is already facing headwinds at further risk."
The attacks come as the United States and Iran spar over
Washington's tightening of sanctions aimed at cutting Iranian
oil exports to zero, and an increased U.S. military presence in
the Gulf over perceived Iranian threats to U.S. interests.
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