EMEA News
Lone Analyst Raises Matter of Potential Cutback Cheats as Libya, Nigeria Agree to Join Extended OPEC Cuts
Although traders on Thursday mainly shrugged at the news of the Organization of the Petroleum Exporting Countries (OPEC) agreeing to extend its output cuts until the end of 2018, the one mildly surprising aspect of the cartel's summit in Vienna was its achievement in getting Libya and Nigeria to participate in the cuts.
Previously exempt from the initial round of cutbacks and widely criticized for compromising the effectiveness of OPEC's cuts, the two countries agreed to a collective cap on their output that exceeds the nations' current production, according to Bijan Namdar Zanganeh, oil minister for Iran.
The inclusion of the two countries along with Russia's support prompted Khalid Al-Falih, energy minister for Saudi Arabia, to declare at a press conference following the Thursday meeting that "We are united, shoulder to shoulder; we are completely aligned."
Analysts were mostly positive about the outcome: "The most positive surprise is the inclusion of Libya and Nigeria in the deal and it removes uncertainty about supply in 2018," said Jan Edelmann, analyst at HSH Nordbank.
One of the few analysts whose note of caution on Thursday made headlines was Helima Croft, global head of commodity strategy at RBC Capital: she conceded that while Falih exceeded expectations by securing Nigeria and Libya's cooperation and that "throughout the year he earned a reputation as a tough compliance enforcer," she added that "Whether his successor, UAE's Suhail [Mazrouei], will be as stern on backsliders remains to be seen," a reference to OPEC's incoming president.
But it's hard to find evidence of Falih - or anyone else within OPEC - having ever come down hard on the many cheaters of OPEC's first cutback deal; instead, the Saudis continuously boosted their own cutbacks to compensate for renegade overproduction from other countries, including Iran, Iraq, Libya, Nigeria, and non-member Russia.
And then there's OPEC's biggest yet frequently denied nemesis: just as the cartel was basking in the warmth of an approving media, the U.S. government reported a large increase in domestic production in September, bringing the total to 9.48 million barrels per day, the fourth-highest monthly level since the early 1970s.
Among the more critical opinions about OPEC's efficacy prior to the Vienna summit was that of Neil Atkinson, head of the oil industry and markets division at the International Energy Agency: in September he argued that "If OPEC were...to maintain its current level of production throughout the rest of 2017 and indeed through 2018, then yes, stocks at the moment would not fall dramatically."
