As Vienna Compliance Meeting Looms, Kuwait's Al-Saleh Says $65 Oil Is Possible With "Commitment" to Current Cutbacks Instead of Deeper Cuts

by Ship & Bunker News Team
Friday January 20, 2017

After two weeks of troubling market setbacks, Brent on Friday rose $1.34 to $55.50 and West Texas Intermediate settled up $1.05 at $52.42, based on the sheer volume of talk about how much supply (as yet unverified) participants in the Organization of the Petroleum Exporting Countries (OPEC) production cutback deal have taken offline.

The gains came prior to the weekend meeting in Vienna that will determine a compliance mechanism to verify that the participants are adhering the agreement to reduce output by 1.8 million barrels per day (bpd).

However, as ministers from Saudi Arabia, Kuwait, Algeria, and Venezuela prepare to congregate in Vienna with counterparts from non-OPEC nations Russia and Oman, Commerzbank stated in a note that "For a lasting balance to be restored on the oil market and the very high stocks reduced, the agreement will need to be strictly implemented over a considerable period of time.

"This is particularly true, given that U.S. oil production is rising again and given that the oil supply from Libya and Nigeria may be expanded."

In the U.S., crude inventories soared 2.3 million barrels in the week to January 13 and gasoline builds were much larger than expected, according to Energy Information Administration data released this week; meanwhile in Libya, the National Oil Corporation (NOC) says production has now climbed to 722,000 bpd.

Earlier this week it was also reported that Saudi Arabia's crude exports surged to a 13.5 year high of 8.26 million bpd in November, prior to restricting supplies under the cutback deal.

But as demonstrated numerous times over the past few months, Middle Eastern producers have a knack for expressing optimism rather than pessimism, and speaking on Bloomberg television, Anas Al-Saleh, deputy prime minister and finance minister for Kuwait, said with regards to oil prices, "We're 100 percent up" from the same time last year, "and I think the $50 to $60 level would be acceptable for the coming period" – meaning the coming six to 12 months.

He added that $55 oil would cut his country's deficit in half, and that "$60 to $65 would be easy to digest" – and that in order to achieve this, a commitment to the current cutback agreement rather than deeper cuts would do the trick.

Echoing the sentiments this week of Mohammed Barkindo, secretary general for OPEC, Al-Saleh said of the cutback participants, "I do feel there's a commitment."

With so many factors regarding current supply as well as actual cutback compliance being unclear, some experts have decided to err on the side of prudence in making public statements, and this week's shining example of that - apart from Commerzbank - is Tamas Varga, analyst for PVM Oil Associates: he told Reuters, "Discipline and strict adherence to the new quotas will be needed probably throughout 2017 and beyond to see the long-awaited and sustainable rebalancing finally arrive."