Baku, Azerbaijan, Oct.9
By Leman Zeynalova – Trend:
Concerns that OPEC compliance would fade into the fourth quarter of 2017 now appear unfounded, according to the analysts of the US JP Morgan Bank.
Assessing OPEC compliance through to the end of the third quarter of 2017, it is obvious that the compliance has been surprisingly strong despite some laggards such as Iraq in particular as was always expected, said the analysis obtained by Trend.
“Notably, Iraq’s assertion early in the third quarter of 2017 that its production would reach 5 million barrels per day (mbd) by the end of the year has been replaced by more measured assurances that it will comply with its target of 4.35 mbd. The most recent data from Iraq’s Oil Ministry estimates August output at 4.38 mbd, which, if accurate would be the lowest level of output since June 2016,” said JP Morgan.
Overall compliance is edging up over time and approaching the initially strong levels that were largely driven by Saudi Arabian outperformance, said the analysts, adding that recent strong performance reflects a more broad-based ‑ and arguably more sustainable ‑ contribution from most producers.
“However, if OPEC is to avoid the consequences of stimulating US shale investment, then either demand growth needs to accelerate to the point where the end of cuts does not flood the market again, or the US shale rebound has to be sufficiently constrained by rising service sector costs and falling productivity,” said the bank.
JP Morgan analysts believe that in addition to the extension, if OPEC were to ask for quotas on exports of crude and fuel oil to ensure better compliance of the OPEC-non-OPEC deal, then that in itself would be even more supportive as it would provide the much required confidence to the oil markets.
In December 2016 in Vienna, 11 non-OPEC countries, including Azerbaijan, agreed to curtail oil output jointly by 558,000 barrels per day. The agreement was signed for the first half of 2017.
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.
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