Saudi energy minister Khalid al-Falih says the worst of the oil price downturn is over
An S&P Global Platts survey released this week shows that the 10 members of the Organization of the Petroleum Exporting Countries (OPEC) participating in the oil reduction initiative have achieved 98.5 percent of their total cuts, up from 91 percent in January.
However, while acknowledging that this high rate of compliance is a remarkable achievement for a cartel not previously known for its commitment to such affairs, Platts says it's still questionable whether the market will be rebalanced by the cutbacks.
Herman Wang, OPEC specialist for Platts, stated in light of output in January falling to average 32.03 million barrels per day (bpd), "A Saudi-led OPEC is showing the market it is serious in making the agreement stick.
Khalid al-Falih, energy minister, Saudi Arabia
I think the fundamentals are coming back into line
"While it remains an open question whether OPEC will achieve its goal of drawing down stocks sufficiently to rebalance the market, OPEC is fulfilling its commitment, certainly in contrast to non-OPEC partners who are some ways from cutting down to their agreed levels."
Platts acknowledged that over compliance by the Saudis and Angola is helping compensate for the overproduction by other members, notably Iraq, Venezuela, and the United Arab Emirates (Iraq is 91,000 bpd above its quota, while Venezuela is 43,000 bpd above, and the UAE is 42,000 bpd above).
Closely following the Platts numbers was Mohammad Sanusi Barkindo, secretary general for OPEC, who on Tuesday at the CERAWeek conference in Houston said that February's reduction numbers are even more impressive: "They have just started coming in, trickling in, and they promise to be even much higher than the January figures of conformity."
A compliance committee will meet later in March to review February's production figures.
Yet more seemingly positive news was delivered by Khalid al-Falih, energy minister for Saudi Arabia, who told CNBC that the worst of the oil price downturn is over: "I think the fundamentals are coming back into line, there are inventory drawdowns, I think demand is picking up, the global economy is doing well, and investment flows have slowed down significantly, which may be an overshoot, but certainly they're not going to cause this glut to stay with us."
He did, however, decline to speculate what the magic number would be for oil that would make everybody happy: "We're trying to discover that; the market will determine that."
It's significant that up until recently al-Falih has suggested that the magic number - for the Saudis, at least - is $60 per barrel, and despite high compliance and assurances from OPEC, the cutbacks are failing to achieve anything other than a price range of $50-$55, with considerable possibilities of a decline.
Indeed, at the CERAWeek conference Bob Dudley, CEO of BP, told CNBC that while market conditions have improved and some confidence has returned, his company is not planning on an uptick in prices: "We're going to plan on a $55-$60 world for the next five years and we're going to live with a strict capital diet."
Profoundly mixed messages have emerged from the CERAWeek conference, some of the biggest delivered by al-Falih: prior to his remarks that fundamentals are coming back in line, he publicly worried that "The green shoots in the U.S. are growing too fast" and that oil inventories aren't draining as quickly as expected.