OPEC Achieves Record First Quarter Output Lows - But Compliance is Still Involuntary in Some Quarters

Russia has sent more signals that a longer term oil deal between OPEC and non members is possible. File Image / Pixabay

The Organization of the Petroleum Exporting Countries (OPEC) once again received widespread positive media attention Tuesday for supposedly achieving high compliance with its crude output reduction deal, this time due to the cartel's production in the first three months of 2018 falling by 425,000 barrels per day (bpd) from its 2017 average, according to Petro-Logistics.

But also once again, the compliance is involuntary and not in the spirit of OPEC members willfully coming together to try and clear the global crude glut: for example, a substantial amount of the decline is due to faltering production in Venezuela, the result of that country's collapsing economy.

Supply from all 14 OPEC countries in the first three months of this year averaged 32.27 million bpd, down 425,000 bpd from OPEC's average daily supply for 2017; when compared with the same period last year, OPEC supply in the first quarter has fallen by 113,000 bpd.

Petro-Logistics' data was accompanied by Suhail Al Mazrouei, energy minister for the United Arab Emirates, who told Bloomberg Businessweek that OPEC's cutbacks have removed  "85 percent of the problem" of oversupply and has benefited the world economy.

He also reiterated the now-familiar contention among key OPEC members that the cartel and non-members such as Russia are supportive of longer-term cooperation.

Amid the rhetoric was some information regarding another familiar topic related to OPEC, namely, that it needs to adopt a more accurate type of measurement to determine proper inventory levels in relation to demand.

Bloomberg stated that "according to delegates from the group," OPEC and its allies have supposedly considered using a seven-year inventory average instead of the current five.

However, Al Mazrouei said producers should first achieve their goal of reducing crude inventories in developed economies before they consider adopting a different measurement.

Capping Tuesday's upbeat OPEC news was Alexander Novak, energy minister for Russia, who told media a joint organization for cooperation between OPEC and non-OPEC countries may be established once the output curbs expires at the end of this year: "We are now thinking about a format for cooperation which could be for the longer-term, which would include the possibility of market monitoring, information exchange, and if needed the implementation of some joint actions."

Earlier this week it was reported that the former Soviet Union, which has repeatedly stressed the importance of OPEC members and non-members reducing their output for the sake of proper supply and demand balance, achieved an 11 month crude production high in March of 1.97 million bpd.