EMEA News
Call For Prolonged OPEC Cutback Deal Intensifies Amid Rumours that Cartel's Relationship with Russia is Strained
Despite the Organization of the Petroleum Exporting Countries' (OPEC) self-congratulatory stance last week that its production cutbacks are successfully bringing about market rebalance, the call for extending those cuts intensified this week, with BP claiming it is essential to shrink inventories.
Janet Kong, Eastern Hemisphere chief executive officer of integrated supply and trading at BP, said while rebalancing is underway, OPEC needs "definitely to cut beyond the first quarter" to bring inventories down and back to historically normal levels and to offset persistent overproduction from renegade members such as Libya and Iran.
She added that "If they extend the cuts, yes it's possible" to achieve $60 a barrel next year, "but it's hard for me to see that prices will be sustainably higher."
Without the continued cuts, Kong said "the world will be awash -- we will be swimming in oil, so to speak."
Iran is another OPEC observer who is repeating the increasingly familiar mantra that begins, "OPEC's cuts are working, but....": in its case, the "but" that Islamic republic wants addressed is rising input from Libya and Nigeria.
Bijan Namdar Zanganeh, oil minister for Iran, told media, "OPEC's actions are working and compliance is acceptable overall, although there needs to be some change; changes are really related to Libya and Nigeria and the 100 percent compliance of everyone."
He added that if a meeting is needed for the cartel to decide whether to extend the cuts, "we'll arrange it."
When asked if his country would adjust its own output if required, Zanganeh replied that Iran "will consider everything within the framework of our national interest and cooperation with OPEC."
But much of the renewed call for a cutback extension has been accompanied by an equally loud demand that OPEC focus on exports rather than production, and on that score Iran stated it will continue to maintain its rate of exporting oil to global customers, to the tune of about 2.2 million barrels per day (this was in response to reports of U.S. president Donald Trump intensifying his offensive against the country).
But even if OPEC decides to extend its cutbacks past the expiry date of March 2018, it will be besieged with problems both old and new: that is the view of Robin M. Mills, CEO of Qamar Energy, who in BloombergView wrote that "the Saudis are increasingly bearing the burden of a deal they cannot afford to walk away from" and that OPEC exports during the first half of this year "did not decline nearly as much as reported falls in production."
He also suggested that OPEC's relationship with Russia is showing signs of strain, with the former Soviet Union's cutback compliance "well short of what was promised" and various officials pegging oil prices next year at an anemic $40-$43 per barrel.
Last week, OPEC and Russia declared that they are about half way toward clearing the global glut, but Alexander Novak, energy minister for Russia, stressed that all parties must work closely together in 2018 and "work out a strategy for the future, to which we will stick starting from April 2018."
