OPEC Does About Face, Suggests Further Oil Cuts Might be Needed

by Ship & Bunker News Team
Thursday February 9, 2017

The Organization of the Petroleum Exporting Countries' (OPEC) cutback agreement, which some members signaled may not need to be extended beyond its July expiry date because it was rolling out better than planned, might continue for the second half of 2017 after all.

Mohammed Al Sada, energy minister for Qatar, told the press at a Wednesday news briefing in Doha that although global oil supplies have decreased as OPEC and non-members such as Russia undertook the six month deal in January, "We kept it open to reconsider the rollover, and rollover is an option if needed."

He added that markets may re-balance in the third quarter of this year, but "It's too early to make a judgment."

Meanwhile, Bijan Namdar Zanganeh, oil minister for Iran, said after meeting in Tehran with his Venezuelan counterpart that in principle, OPEC will have to cut output in the second half.

He went on to say that the issue needs further study before the cartel can make a decision.

Zanganeh's comments are ironic, considering the Islamic republic in late January exceeded its deemed OPEC production ceiling of just under 3.8 million barrels per day (bpd).

As non-committal as these remarks may seem, they are a sharp turnaround from the enthusiastic rhetoric spouted by members since January and especially in the wake of reports that the cutback agreement was enjoying an 80 percent-plus compliance rate.

For example, Khalid Al-Falih, energy and industry minister for Saudi Arabia, and Noureddine Boutarfa, oil minister for Algeria, declared just two weeks ago that compliance is so high the agreement will probably expire in June; and Emmanuel Kachikwu, minister of state for petroleum for Nigeria, told reporters that the cartel's initiatives are enough to re-balance the market and trigger higher prices: "Ultimately, the effects over the next few months will get us to where we want to be, which is in the mid-$60s."

Presumably, production difficulties plaguing some OPEC members will help the cartel achieve its elusive goal of reducing the global glut and re-balancing the market, case in point: Nigeria, whose largest export terminals Bloomberg reports are experiencing significant reductions despite its attempts to curb militant attacks.

As a result, Nigeria pumped only 1.5 million bpd in late January, 30 percent below what it was hoping to achieve.

Charles Swabey, oil and gas analyst at BMI Research, made the provocative suggestion that if the Nigerian government is successful in a peace process with the militants, the country could become "a drag" on OPEC's push to rebalance the market "and will likely slow the process down."

Al Sada and Zanganeh's remarks seem to indicate that the brief media honeymoon accompanying the OPEC cutback roll-out is well and truly over, especially in light of this week's reports of inventory builds and Iran and Libya pumping so much crude that these two countries alone are obliterating any benefits resulting from the cartel's initiative.