OPEC And Allies "Designing a Framework" For Supply Management After Cutbacks Expire Next Year

OPEC's secretary general insists that global supply and demand will be fully rebalanced by the end of 2018. File Image / Pixabay

Apparently unfazed by reports earlier this week that Libya and Nigeria seem poised to thumb their nose at the cutbacks after agreeing to them, the Organization of the Petroleum Exporting Countries (OPEC) is again touting its success in extending its crude reduction initiative for 2018 - and is considering plans for prolonged oil supply restraint.

Speaking in China on Wednesday, Mohammad Barkindo, secretary general for OPEC, stated that his cartel and its allies are "designing a framework for a continuity strategy for supply management to help ensure a stable and sustainable oil market."

This is presumably inspired by what Barkindo believes is OPEC's effectiveness in reigning in overproduction: he later told Bloomberg television of the "significant progress we have made with our non-OPEC friends in aiding the oil markets to return to stability; we are continuously seeing massive de-stocking in all regions, both crude and products."

Barkindo estimated that the global glut has shrunk to 130 million barrels above the five year average; last month OPEC pegged the volume at 154 million barrels

Barkindo went on to remind Bloomberg that his cartel had brought together 30 countries for "the first time in history to show solidarity" in continuing to cut back production throughout 2018 and that the return to market stability is "something that has eluded us for several years"; he expects a full rebalance will be achieved by the end of 2018.

The secretary general has of course rarely painted OPEC's efforts in anything but glowing terms, even though the cutbacks in 2017 were beset by cheaters, claims of inaccurate monitoring, and widespread criticism that the reductions were simply not enough to effectively combat expected rises in production from different nations.

It's also unclear if global economic growth is indeed strong enough to soak up anticipated output in 2018 as he claims; however, if nothing else, OPEC may get a "shot in the arm", according to Bloomberg, due to Ineos shutting down the Forties portion of the North Sea crude pipelines for up to four weeks after it discovered a hairline crack along the base of the conduit.

Bloomberg estimated that this could remove a further 5.5 million barrels to 13 million barrels from the market by the time the repairs are complete.

Even though the ceaseless upbeat rhetoric from Barkindo and other OPEC members has seemingly worn down analysts to the point where they are taking a lot of their claims at face value, they still can't get worked up enough to predict anything but mediocre price gains as a result of the cartel's cutback efforts: earlier this week Dan Yergin, vice chairman at HIS Markit, forecast that crude would reach the high $50s or $60s next year - in other words, not much different from prices as they stand now.