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OPEC deal: mission accomplished?

Oil&Gas Materials 14 April 2018 10:08 (UTC +04:00)

Baku, Azerbaijan, April 14

By Leman Zeynalova – Trend:

As far as the OPEC/non-OPEC output cuts are concerned, some countries party to the 2016 Vienna agreement, have, for different reasons, seen production fall by more than they promised, the International Energy Agency (IEA) said in its Oil Market Report.

OPEC and several other non-OPEC producers have reached an agreement to extend the production deal for a further nine months. This would shift the expiration date of the agreement from March to the end of 2018. The agreement is on the same terms as those agreed in November 2016.

“These extra cutbacks total over 800,000 barrels per day (b/d). To all intents and purposes, more than a second Saudi Arabia has been added to the output agreement,” said the report.

The overall state of the cuts in March shows OPEC's compliance rate at 163 percent with its non-OPEC partners achieving a rate of 90 percent, according to IEA estimates.

“With just under half of global oil supply subject to restraint and oil demand growing steadily, the impact on stocks has been substantial. The text of the Vienna agreement notes that OECD (Organization for Economic Co-operation and Development) and non-OECD stocks were above the five-year average and states that they should fall to "normal" levels. Normal is assumed to mean, although it does not explicitly say so, the five-year average. There is less clarity with regard to non-OECD stocks, so five-year average OECD stocks have become the de facto target to measure success of the output cuts,” said the report.

Since May last year they have fallen constantly the average and new data for February show a larger than usual fall in volume terms with stocks now only 30 million barrels above the five-year level, and product stocks actually below it, according to IEA.

“Our balances show that if OPEC production were constant this year, and if our outlooks for non-OPEC production and oil demand remain unchanged, in 2Q18-4Q18 global stocks could draw by about 0.6 mb/d. With markets expected to tighten, it is possible that when we publish OECD stocks data in the next month or two they will have reached or even fallen below the five-year average target. It is not for us to declare on behalf of the Vienna agreement countries that it is "mission accomplished", but if our outlook is accurate, it certainly looks very much like it,” said the report.

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Follow the author on Twitter: @Lyaman_Zeyn

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