Barkindo Warns of "Negative Consequences" of Not Curbing Output As OPEC Pumps Record Volumes

Barkindo said the current price cycle is "probably the most severe" that OPEC has ever faced

In an uncharacteristic change of tone just days after he assured oil producing nations that the production cutback deal would be ratified, Mohammed Barkindo, secretary-general for the Organization of Petroleum Exporting Countries (OPEC), warned that prolonged market instability will result if members and non members fail to limit output.

Stating on Tuesday at a briefing in Abu Dhabi that he doesn't want to sound "like a prophet of doom," Barkindo said that markets are "eagerly awaiting" combined action, and that "failure to jointly act with our non-OPEC colleagues and friends in accordance with the Algiers accord will further elongate this period of very low growth, this period of instability in the market, and will put forward, further, the re-balancing process."

He also characterized the oil industry as being in an "already fragile state."

Barkindo said the current price cycle is "probably the most severe" that OPEC has ever faced, and that the overall goal of the deal members agreed to (with the glaring exception of major players Iran, Iraq, Nigeria, and Libya) is to "trigger an accelerated draw-down" of oil inventories built up amid oversupply.

Barkindo's urgent tone seemed at odds with a statement he released earlier this week in the wake of tensions between Saudi Arabia and Iran flaring up again during a weekend discussion about the cutbacks: he said, "the fact that discussions are still going on is a positive one," and he concluded that a deal will be reached.

He delivered a more muted version of that message on Tuesday by remarking, "I remain confident that the message has sunk in, the consequences are clear, and the experience of the past two years or so has been noted and learned."

Unfortunately, reality suggests otherwise: S&P Global Platts reports that OPEC has ramped up production to record levels beyond 33.5 million barrels per day (bpd), and Simmons & Company International says Russia has increased output by about 500,000 bpd in the last two months, while the combined production of Libya and Nigeria brought another 500,000 barrels of new supply to the oversaturated market.

Moreover, ClipperData shows a record 48.4 million bpd of seaborne exports in October, up nearly 13 percent from a year ago; and the U.S. Energy Information Administration says American stockpiles saw their biggest weekly increase in 34 years of record keeping, up 14.4 million barrels for the week ending October 28.

In fact, October's production increase was so overwhelming that Goldman Sachs Group thinks OPEC's proposed cuts will merely keep output in line with estimates from before the announcement.

The weekend clash between the Saudis and Iran may be a taste of things to come at the upcoming Vienna talks, with the former offering to reduce output to about 10.2 million if Iran agreed to freeze production at around levels of 3.6 million-3.7 million bpd – and Iran countering that the offer was a false one because the kingdom had already boosted output to record levels.