Russian Energy Minister Alexander Novak says "the market had low expectations"
The growing image imparted by the Organization of the Petroleum Exporting Countries (OPEC) oil cutbacks of one faction's cuts being dwarfed by another's production increase was fortified on Wednesday when Saudi Arabia and Russia presented a united front on compliance - only to have the rug pulled out from under them by Iraq boasting that it will be able to produce 5 million barrels per day (bpd) by the second half of this year.
The comments were made at CERAWeek in Houston, which has seen everything from the Saudi energy minister expressing new fears that the global glut isn't being reduced fast enough, to a rumoured private meeting between OPEC and U.S. shale producers to determine how to keep oil prices above the $50 mark.
Khalid Al-Falih, the Saudi energy minister, and his Russian counterpart Alexander Novak staged a news conference in Houston to assure onlookers that the OPEC cuts can still work: the former stated, "The market had low expectations, which we have exceeded by a large degree; we are definitely on the right track and are picking up speed in terms of delivery."
Khalid al-Falih, minister of energy, Saudi Arabia
We are definitely on the right track and are picking up speed in terms of delivery
Novak promised that Moscow will cut production further and said that compliance - which has already been pegged at 98 percent - will improve in the next three months; he added that he and other ministers have also discussed the possibility of a cutback extension to the end of 2017.
Both al-Falih and Mohammad Sanusi Barkindo, secretary general for OPEC, tried to downplay their concern over the impact of rising U.S. shale production; the former earlier stated that the market can absorb another 3 to 5 million bpd "over a number of years," while the latter stressed it was important in considering U.S. growth to also look at offshore data that is beginning to show declines.
It's anyone's guess how many CERAWeek delegates took heart in the show of unity, but presumably Iraq's participation in the conference caused many analysts trepidation: that's because the country's oil minister Jabbar Ali Al-Luiebi bragged that "We achieved this great achievement of 4 million bpd ... middle of 2016, and now we have climbed up and we are reaching about 5 million bpd beginning of second half of this year."
Under the OPEC cutback agreement Iraq is supposed to be producing only 4.35 million bpd for the first six months of 2017; its production in January was nearly 4.47 million bpd.
When asked by CNBC what would happen if OPEC decides to extend the cutbacks, Al-Luiebi replied, "It would premature to comment."
Even though OPEC has achieved a remarkable compliance rate, Platts says it's still questionable whether the market will be rebalanced, given the overproduction by other members, notably Iraq, Venezuela, and the United Arab Emirates.