Why illogical to increase current OPEC cuts?
Baku, Azerbaijan, Sept.8
By Leman Zeynalova – Trend:
There is no point to increase the current oil output cut targets by OPEC and participating non-OPEC countries, as the recent data shows that the parties to the deal fail to meet even the current target.
Charles Ellinas, CEO of Cyprus-based energy consultancy e-CNHC told Trend that he doesn’t expect OPEC and non-OPEC to agree to increase current cuts, even though Saudi Arabia may support further cuts, but it is unlikely to do it alone.
“The key countries are happy with prices over $50 per barrel,” said the expert. “Russia appears to be quite happy to extend cuts into next year but so far it has not come out in support of increasing the volume. Most in OPEC feel that the oil market is going in the right direction and do not see the need to increase cuts. There are signs that the market is tightening and prices appear to have settled in the $50-$55 per barrel range.”
The compliance level of OPEC and participating non-OPEC countries has dropped from 98 percent in June to 94 percent in July.
Moreover, International Energy Agency (IEA) said in its August Oil Market Report that together, the twenty-two countries of the OPEC oil output cut deal are producing about 470,000 barrels per day (b/d) in excess of their commitment.
“Some of them are clearly determined that the output agreements will succeed: Saudi Arabia has indicated that export levels in August will fall to 6.6 million b/d, and, according to recent reports, it will cut customer allocations in September. Other countries currently have very low compliance rates, although this can change,” said the report.
OPEC crude output rose by 230,000 b/d in July to a 2017 high of 32.84 million b/d, led by a strong recovery in Libya, according to IEA estimates.
But in the case if OPEC and non-OPEC countries fail to extend the deal, oil prices will fall below $50 per barrel, Ellinas believes.
“Current cuts have not eliminated the oil glut and US shale, Nigeria and Libya may add to it if if the current deal is not extended,” he added.
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