Baku, Azerbaijan, May 31
By Leman Zeynalova – Trend:
OPEC may need a new sustainable oil output deal, the US JP Morgan analysts believe.
“In 1Q2018, OPEC’s compliance was around 1.75mbd of supply cuts, compared to agreed reduction of 1.2mbd. In Apr’18, the compliance stood at 2.03mbd vs baseline 1.18mbd. We have so far been prudent in our own assumption and have taken OPEC’s total supply at 29.6mbd excluding Libya and Nigeria which takes into consideration large over-compliance from Saudi Arabia,” said the report of JP Morgan obtained by Trend.
The bank analysts believe that a reduction in OPEC’s compliance to 100 percent would mean OPEC adding 640,000 bd of oil into the market based on Jan-Apr’18 average or 800,000 bd based on high compliance month of Apr’18.
“But would that be enough to offset the risk of decline from Iran, Venezuela and Angola on the back of rising geopolitical risk? OPEC might want to manage the oil prices when the control is in their hands rather than let the markets decide based on either demand or supply reacting to higher oil prices, which would be unfavorable for them and they would lose control once again,” said the report.
JP Morgan believes that one such solution could be a more dynamic checks on OPEC and Non-OPEC production and allowing more oil to be brought back based on a quota based system.
“Another reassurance that they can provide to the market is making some non-OPEC members such as Russia, Oman, Kazakhstan and Mexico join OPEC in the medium term until markets have fully recovered on a sustainable basis. This is a very critical point in the deal for both Saudi Arabia and Russia where they are confronted with impact of higher oil prices on demand for the key consuming countries, impact of US sanctions on Iranian barrel, loss of barrels from Venezuela to Angola and finally the ever haunting US shale supply taking their market share in regions as far away as Asia,” said the report.
“The OPEC-NOPEC group has seen the benefit of the deal in the last 1.5 years and can compare with the losses they suffered after the oil price crash and run for market share on the back of that. So crafting a “new sustainable deal” might be required for OPEC and a clear message to the markets even more important if they want to avoid further sell-off.”
In December 2016, at a meeting of oil producers in Vienna, 11 non-OPEC member countries agreed to cut oil production by a total of 558,000 barrels a day. The agreement was concluded for the first half of 2017 and was extended until the end of the first quarter of 2018 at a meeting on May 25, 2017.
At the last OPEC meeting in Vienna, the agreement was again extended until the end of 2018. Azerbaijan supported the decision.
---
Follow the author on Twitter: @Lyaman_Zeyn