Any output cut addition in OPEC not to be functional – expert

Oil&Gas Materials 21 August 2017 15:32 (UTC +04:00)
Any further increase in OPEC/non-OPEC oil output cut quota will not be functional.
Any output cut addition in OPEC not to be functional – expert

Baku, Azerbaijan, Aug.21

By Leman Zeynalova – Trend:

Any further increase in OPEC/non-OPEC oil output cut quota will not be functional, Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY and SVP MEA-Risk, told Trend Aug.21.

Sharing his expectations from the OPEC/non-OPEC Joint Technical Committee meeting to be held Aug.21-25 in Vienna, the expert noted that a possible production cut increase will be discussed, even if not openly, then behind closed doors.

“At present, any production cut addition will not be really functional, as it not only will not have a big effect on markets, but also will decrease revenues of the producers even more,” he said.

Widdershoven noted that for Saudi Arabia , at present the situation is very difficult, as they are planning the Aramco IPO (initial public offering), so a high revenue base is needed for the valuation, but the Kingdom is also looking for higher income.

A possible stalemate or waiting period is to be expected from Saudi Arabia, said the expert, adding that pressure however will be put on Iran, Libya, Nigeria (all OPEC), while Russia, Canada and US will be asked to join too or even keep production at bay.

“First and most fore-all pressure from all will be on the compliance rate of the members to commit to the production cut. The latter is still very high, even according to historic facts, but markets see anything showing less than 100 percent as being a threat to prices,” he noted.

The expert believes that looking at the current situation, and then looking into history, the cartel is currently very impressive.

“Some production compliance is based on external factors or instability, but Gulf Cooperation Council (GCC) producers have been impressively keeping their production at promised levels. No real 100 percent compliance should be expected ever, OPEC always has been overproducing, sometimes even way above official levels. Currently this has been kept as stated, so impressive,” added Widdershoven.

On May 25, OPEC member countries and non-OPEC parties, Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Kazakhstan, Malaysia, Mexico, Sultanate of Oman, the Russian Federation, Republic of Sudan, and the Republic of South Sudan agreed to extend the production adjustments for a further period of nine months, with effect from July 1, 2017.

The reductions will be on the same terms as those agreed in November.


Follow the author on Twitter: @Lyaman_Zeyn