EMEA News
It's Up To Non-Members To Make The Cutback Deal A Success: OPEC
With Brent on Friday closing up 44 cents at $54.33 per barrel and West Texas Intermediate closing up 66 cents at $51.50, it's becoming increasingly apparent that the ultimate success of the Organization of the Petroleum Exporting Countries' (OPEC) cutback agreement hinges on compliance from non-members.
The latest rise in oil prices is said to be based on optimism that OPEC's December 10 meeting in Vienna with 10 non-OPEC producers will result in the latter agreeing to help curb the global glut.
With its stated intention to reduce it own output next year by 300,000 barrels per day (bpd), Russia is widely viewed as leading the way in non-member compliance, and on Friday Alexander Novak, energy minister for that country, said of the Vienna summit, "I look with optimism at tomorrow's event;
I think that we will agree, and we must agree."
He added that he was confident non-OPEC producers will contribute 600,000 bpd of cuts alongside OPEC's production cut of 1.2 million bpd.
Another Russian source to Reuters, "One hundred percent compliance is critical for the deal ... it's essential for non-OPEC to have a responsible approach towards the deal."
Meanwhile, Saudi Arabia, seen as the driver of the cutback deal and taking the brunt of the reductions, has reportedly informed its refinery customers that it will stand behind its obligations (which is necessary in order for Russia to fulfill its pledge).
Azerbaijan, Kazakhstan, Oman, Mexico, Russia, Sudan, South Sudan, Bahrain, Malaysia, and Equatorial Guinea will attend Saturday's meeting, and Bloomberg notes that people "familiar with the matter" will accept natural declines from some nations instead of demanding active cuts.
These insiders also stated that the 600,000 bpd cutback is important because the OPEC cut alone might not be enough to alleviate stockpile build up – which is the exact opposite of what many OPEC insiders insisted would be the case when they ratified the deal last week.
Surprisingly, one of the deal's biggest critics is becoming a supporter: John Kilduff, founding partner of Again Capital, told Bloomberg, "There's a growing consensus that OPEC and non-OPEC countries will succeed in coming to an agreement tomorrow.
"These Saudi notices to refiners that they are in the process of following through with the cuts makes the accord much more real than it has been."
But it's questionable if all this maneuvering will result in anything fruitful: Bloomberg calculations based on OPEC data show that for all of 2017 there will be little overall reduction in record oil inventories, even if the cartel wins over non-members.
That's because OPEC's track record shows the cartel delivering only 80 percent of promised cuts; Russia's cutback is to last for six months only; and non-members such as Mexico, Azerbaijan, and Colombia are likely "to dress up involuntary production declines, already factored in by traders, as cuts," states Bloomberg, adding, "that scenario would leave largely unchanged the 300 million-barrel global stockpile surplus [Venezuelan oil minister Eulogio] Del Pino and his colleagues are targeting."
This dire conclusion is supported by Tamas Varga, analyst at PVM Oil Associates Ltd.: "Even with 100 percent compliance from both OPEC and non-OPEC producers, global stocks are unlikely to fall in the first half of 2017; That should keep oil prices in check."
If nothing else, the cutback deal seems to have heralded stronger ties between OPEC and Russia, a notion fortified earlier this week by OPEC member Qatar and commodity trader Glencore committing to buy a 19.5 percent stake in Russian oil giant Rosneft for 10.2 billion euros ($11 billion).
