Baku, Azerbaijan, July 25
By Elena Kosolapova – Trend:
It will be very difficult for OPEC to maintain compliance with their production cut agreements unless prices begin to improve soon, believes Arthur Berman, an independent US geological consultant.
“Members will start breaking their quotas because they need cash flow to maintain their economies and social programs. By the same logic, I see little hope for further extension of OPEC agreements without meaningful price improvement,” Berman, who has about 40 years of experience in petroleum exploration and production, told Trend by email.
The expert noted that the market consensus is that OPEC production cuts have done little to reduce global inventories or to increase prices so far.
“This is despite general agreement that compliance with the cuts has been much better than expected,” he said.
Berman noted that the initial increase in oil prices after the cuts were announced in late November have been canceled by subsequent downward adjustments.
“In other words, higher prices were based solely on sentiment and expectation that OPEC would correct the world over-supply of oil,” he said.
The expert believes that oil is correctly priced at current levels of $45 WTI and $48 Brent based on comparative inventory-price data.
According to Berman, both OECD and WTI inventories are falling, just not fast enough to meet market expectations.
“At current rates of decline, I can imagine $48-53 WTI and $50-55 Brent by the end of 2017,” the expert said, adding that, geopolitical events could modify those prices, but the upper ranges are approximately where prices were from December 2016 through February 2017 when expectations about the OPEC cut were high.
In late 2016 OPEC agreed to slash the output by 1.2 million barrels per day from Jan. 1, with top exporter Saudi Arabia cutting as much as 486,000 barrels per day. Non-OPEC oil producers such as Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan agreed to reduce the output by 558,000 barrels per day. The agreement was for six months period, extendable for another six months.
In May, all the participants of last year's agreement agreed to extend it to another nine months.
Yesterday a Joint OPEC-Non-OPEC Ministerial Monitoring Committee met in St. Petersburg to review the June 2017 report as well as the first six months of the Declaration of Cooperation.
After the meeting the cartel announced that OPEC deal producing countries had achieved a conformity level of 98 percent in June 2017. Same level of high conformity was observed for the first six months of January to June 2017.
Between January and June 2017, the participating producing countries adjusted their production downwards by an estimated volume of 351 million barrels, OPEC said.