BAKU, Azerbaijan, Dec.6
By Leman Zeynalova – Trend:
OPEC’s decision on deeper oil output cuts allows to increase the pressure on countries such as Iraq and Nigeria, which have been consistently overproducing, to reduce their output, Emma Richards, oil and gas analyst with BMI Research told Trend.
Sources say that during its December 5 meeting in Vienna, it was recommended to increase the cuts from 1.2 million barrels per day to 1.7 million barrels per day.
“On paper, the increase in the cut from 1.2mn b/d to 1.7mn b/d is quite significant. But the effective cut will be much smaller, given that the group has already reduced its output by around 1.6mn b/d. What the 1.7mn b/d target does allow them to do, though, is to increase the pressure on countries such as Iraq and Nigeria, which have been consistently overproducing, to reduce their output,” the expert said.
Richards thinks that’s likely the reason why they’ve decided to leave the expiry date for the deal at March, rather than rolling it over to June or December.
“There’s an implicit threat there, that if these countries don’t start pulling their weight, the deal could end,” noted the expert.
She went on to add that the market looks set for a significant oversupply in 2020 – in the region of 1.0mn b/d – due to strong non-OPEC supply growth (largely from the US, Brazil, Guyana and Norway) and still weak demand growth.
“The action being taken by OPEC+ won’t be sufficient to clear the glut and so we are likely to see y-o-y declines in the price next year,” Richards believes.
In late 2018, OPEC and a number of countries outside this organization (OPEC+ format) decided to modernize the terms of the agreement on the reduction of oil production, in force from the beginning of 2017. The countries agreed to reduce the total production by 1.2 million barrels per day from the level of October 2018.
On July 2, 2019, a decision was made in Vienna to extend the agreement on reducing oil production by OPEC member and non-member states until the end of the first quarter of 2020.
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