OPEC Tries to Ensure A Consensus For Cutback Extension But is "Stuck Between a Rock and a Hard Place," says Analyst

by Ship & Bunker News Team
Friday April 28, 2017

Experts say it may have impacted floating storage, but otherwise the Organization of the Petroleum Exporting Countries' (OPEC) attempt at reducing global stockpiles is so far a bust - so the cartel on Thursday said it is working to ensure that the impending decision to extend the cutbacks will reach consensus.

Speaking at a conference in Paris, Mohammad Barkindo, secretary-general for OPEC, insisted the oil market is moving closer to being balanced due to the cutbacks, and "While it is evident that the market rebalancing is now moving forward and investment specifically in short-cycle projects is returning, it is essential we do not take our eyes off our desired goals."

Barkindo added that "We need to see the global stock overhang move closer to its five-year average," and he went on to remark that Khalid al-Falih, energy minister for Saudi Arabia, is working to influence the outcome of the OPEC meeting in Vienna next month.

He said, "We are confident that the collaborative effort of minister Khalid al-Falih and other ministers ... will eventually facilitate a successful conclusion of the meeting in Vienna on the 25th."

For the record, the Saudi energy ministry on its Twitter account stated that Falih has met his Azeri counterpart Natig Aliyev and both have agreed to support continuing the production cut agreement.

Richard Gorry, managing director of JBC Energy Asia, told CNBC that while the OPEC initiative has  made floating storage uneconomical, "People had over-expectations for the output cuts for the first half of the year; they would balance the market a little bit better, but it's not that we would see a big inventory drawdown."

However, Gorry is hardly dismissing OPEC's efficacy out of hand; he said despite initial appearances, a study of the fundamentals shows that demand will outstrip supply later this year, and that "we see the oil price going back to $55; we see it in that range, but we accept that if we do see a rollover in the OPEC cuts, we could get closer to $60."

When asked how likely a rollover will be, Gorry noted that most of the traders he has talked to have already priced in the OPEC cuts: "They believe it's going to happen."

But he reiterated the familiar fear that if OPEC does extend its effort, bolstered prices will further stimulate U.S. shale, and the market will move further away from rebalance: "They're stuck between a rock and a hard place."

Earlier this week, many analysts, including the Abu Dhabi Investment Authority, warned that crude will probably drop to $40 per barrel unless OPEC and its allies maintain course beyond the June expiry date.