As Talk of OPEC Cutbacks Being Achieved Continues, Nigeria Predicts Oil Will Soon Hit Mid-$60s

by Ship & Bunker News Team
Friday January 27, 2017

Calling the cutbacks "a sacrifice", Jabbar Al-Luaibi, oil minister for Iraq, says his country has reduced output by 180,000 barrels per day (bpd) and will cut another 30,000 bpd by the end of the month, thus fully complying with the Organization of the Petroleum Exporting Countries (OPEC) reduction accord.

Al-Luaibi told Bloomberg television, "This whole sacrifice is for OPEC unity; at the same time we are after the balance of the oil market."

He added that it's too early to determine if the OPEC cutbacks will be extended beyond the six-month agreement, but it seems his colleagues over the weekend approached a decision on the issue already, with Khalid Al-Falih, energy and industry minister for Saudi Arabia, and Noureddine Boutarfa, oil minister for Algeria, declaring that compliance is so high the agreement will probably expire in June.

Disregarding the fact that compliance verification has so far been confined to state officials claiming the reductions have been enacted, the cutbacks that were agreed to are minuscule compared to increases that lie ahead: Martin Craighead, chief executive officer at Baker Hughes Inc., told investors "There's a bit of a disconnect between the OPEC cuts that were announced and what we're forecasting at least for the next six months in terms of activity."

Craighead, whose company helps explorers drill and maintain oil wells and whose Middle East jurisdiction is its second-largest revenue-generating market, went on to remark, "

"We still expect it to be relatively steady; a couple pockets of the more midsize to smaller players in the Middle East are actually going to increase."

Increases of course are also anticipated outside of the Middle East: Nigeria is now pumping about 1.5 million bpd, and Emmanuel Kachikwu, minister of state for petroleum for that country, told Bloomberg that level must increase to 1.8 million bpd before any cuts under OPEC are considered.

Yet, Kachikwu believes the cartel's initiatives are enough to rebalance 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."

In addition to OPEC members such as Nigeria, Iran, and Libya determined to increase their output regardless of the global glut, Russian production is anticipated to reach record highs after the expiry of the OPEC agreement, and the recovery of U.S. shale is yet another threat to market and price stabilization.

And for those who correlate market performance with the overall health of the oil industry, Phil Davis, managing partner at PSW Investments, recently warned that "The oil market is actually weaker than it looks because it is being propped up by the weak dollar."