OPEC Adheres to Cuts While Boosting Production

by Ship & Bunker News Team
Thursday August 30, 2018

Confirming earlier figures reported by media, the Organization of the Petroleum Exporting Countries (OPEC) on Thursday stated that it delivered 109 percent of pledged oil supply cuts in July.

This means that compared to a compliance level of 120 percent for June and 147 percent for May, the cartel is having its cake and eating it too: adhering to its original agreement to reduce production in order to alleviate the global supply glut that has plagued the market for the past year, while at the same time steadily increasing production to ward off the market tightening that is now occupying the concerns of many analysts. 

In a statement, OPEC and the non-OPEC Joint Ministerial Monitoring Committee (JMMC) expressed its satisfaction with recent oil market fundamentals showing a good balance between supply and demand, considering seasonal factors; a meeting will be held on September 23 in Algeria to review the plan for monitoring market fundamentals and conformity for the rest of 2018.

Also, according to a review draft seen by Reuters, OPEC and non-OPEC oil producers will aim to formalize their output cooperation for the long term later this year by approving a charter that will enable further joint action on production, with ministers of participating countries meeting yearly and industry experts meeting twice annually.

The charter states that its fundamental objective is to coordinate policies aimed at stabilizing oil markets in the interest of producers, consumers, investors and the global economy; it also intends to promote better understanding of oil market fundamentals among participants as well as to promote oil and gas in the global energy mix for the long term.

It's no secret that the spectacular rise of U.S. energy production under president Donald Trump seems to have made OPEC's machinations somewhat less salient in the eyes of media and many experts, and the cartel these days appears to be quietly attempting to disprove critics who insist it can't make up for shortfalls due to declining exports from countries such as Venezuela and Iran.

However, OPEC may by default regain some of its lost luster thanks to persistent reports that in rival U.S., the pipeline infrastructure can no longer accommodate the huge flows of output from producers.

The latest report was delivered Thursday courtesy the Texas Railroad Commission, which disclosed that Texas oil production in June was 98.9 million barrels, down about 2 percent from the same month last year and off 7 percent from the previous month; so far this year, the state's crude output had been rising 10.4 percent annually.

Reuters points out that the slowdown comes as oil prices in West Texas "have fallen to near four-year lows as production outpaces takeaway capacity, including pipelines, local refineries, and rail cars"; some producers have said they will pull back on activity and delay well completions as a result of the falling prices.

Still, many others think the American pipeline woes are temporary rather than a growing trend: earlier this week Patrick Pouyanne, chief executive of Total, told an oil conference he is taking a "prudent" approach to oil prices after 2019, when bottlenecks in U.S. infrastructure could be resolved.