Fear of Drastic Market Downturn Resurfaces in Wake of OPEC Non-Member Cutback Compliance Said to Be Only 48 Percent

by Ship & Bunker News Team
Tuesday February 14, 2017

Even though the Organization of the Petroleum Exporting Countries (OPEC) is being credited for achieving a 92 percent compliance in its oil production cutback initiative, the 11 non-OPEC producers who agreed to join in with cuts have implemented less than 50 percent of their pledged reductions, says Kuwait.

The news dovetailed with data released Monday by the U.S. Energy Information Administration that U.S. shale oil production is expected to rise in March by 80,000 barrels per day to 4.87 million barrels per day (bpd), as well OPEC's monthly report whose figures reveal that the cartel's January output still isn't low enough to bring the market back into balance, let alone clear an estimated 300 million barrel inventory surplus.

This is despite OPEC crediting Saudi Arabia for cutting production by the most in over eight years (by 717,600 bpd last month to 9.748 million bpd),

While all of this had a moderate downward effect on the market (Brent on Monday dropped by $1.09 to $55.61 and West Texas Intermediate fell 93 cents to $52.93), ICE data shows that speculators cut net long positions on Brent last week by 10,000 positions – which highlights concerns about swelling production and lends credence to the argument from many analysts that persistent U.S. growth or more signs of non-compliance from OPEC – could result in a drastic downward price spiral.

Perhaps with this in mind, Essam Al-Marzooq, oil minister for Kuwait, urged non-members such as Russia, Kazakhstan, and Oman to fulfill their cutback commitments: "At the time when producers signed the deal, the initial commitments were to gradually increase cuts until April and May, so we were expecting to see some producers not fulfilling the 100 percent cuts.

"We understand the circumstances, and in February we are talking to non-OPEC producers to raise their cuts according to their commitments."

Bloomberg data shows that Russia and the other non-OPEC participants in the agreement have cut 269,000 bpd of their pledged reduction of 558,000 barrels - which translates to a 48 percent compliance rate.

Meanwhile, OPEC has again resorted to the argument that supposedly stronger than expected demand will help bring about market rebalance, and in its report it boosted its estimates for growth in world fuel consumption in 2017 by 35,000 bpd to 1.19 million bpd.

All was not gloom on Monday, however: loading programs obtained by Bloomberg show that oil exports from Iraq, which has been exceeding its cutback limit by about 279,000 bpd, are poised to decline to a seven-month low in March due to ongoing field maintenance and a seasonal slump in shipments.

Last week, Herman Wang, OPEC specialist at S&P Global Platts, highlighted the fragility of the OPEC cutback agreement by remarking, "how long Saudi Arabia is willing to shoulder the burden of these cuts if it proves some of their cohorts are not fully complying with the deal remains to be seen."