OPEC Announces Stronger Commitment to Production Cuts While Boosting Its Oil Demand Forecast

One analyst sees nothing in OPEC's arsenal of rhetoric that will boost prices to even $57. File Image / Pixabay

In a week that has seen muted reaction to the Organization of the Petroleum Exporting Countries (OPEC) non-eventful Abu Dhabi meeting and OPEC doing its utmost to assure audiences that it will improve compliance of its production cutback agreement, the cartel on Thursday offered another bright near-term scenario via its latest monthly report, which boosts estimates for oil demand amid stronger than expected fuel consumption.

OPEC increased the amount it needs to supply in 2017 and 2018 by about 200,000 barrels per day (bpd) per year, and it increased projections for global oil demand by about 100,000 bpd for each of those years.

Additionally, the report lowered estimates for rival (U.S. and Canada) supply by 50,000  and 90,000 bpd for 2017 and 2018 respectively.

Unsurprisingly, the report points to OPEC's success in helping the market to rebalance, due to stockpiles in June in developed nations falling by 21.9 million barrels - and it stated that if its output remains steady at 32.87 million bpd, it will shrink stockpiles by about 68 million barrels.

Meanwhile, OPEC's de facto leader, Saudi Arabia announced on Thursday that it will ensure coordination of its oil policies with Iraq, following a meeting between the two producing giants and in an attempt to improve global fundamentals.

The move is also presumably a reaction to on going rising production from Libya and Nigeria, two countries that were widely expected to be the focus of the Abu Dhabi meeting but were ultimately ignored - at least as far as press coverage was concerned.

Richard Gorry, managing director of JBC Energy Asia, told CNBC that it technically wouldn't be hard to enforce output cuts on Libya and Nigeria, but the imposition of cuts on them would require a formal OPEC meeting: "These smaller technical meetings we have seen over the past couple of months are not the forum for these decisions to be made."

As such, he concluded, neither country would close in on any ceiling imposed upon them any time soon, given their struggles to sustain production let alone grow it.

As for the rising political tensions that were mentioned in the OPEC meeting and have been monitored closely by analysts over the past few weeks, Vandana Hari, founder of Vanda Insights, said that despite U.S. sanctions against Venezuela, Iran, Russia, and North Korea, they have not affected the crude market as would traditionally be the case because "none of them directly impact oil supplies; [also] we still have a persistant supply glut, so the market is just not keen to connect so many dots to a potential disruption in supply.

"So we see crude stuck in what I call a `no man's land' right now."

Hari also said she expected that nothing in the new OPEC report would send crude back to the $57 level it reached earlier this year.

While the Saudis' commitment to rein in their crude allocations seems admirable on paper, Stephen Brennock, oil analyst for PVM, earlier this week suggested it is likely a futile gesture: "(While) it helps to lift sentiment in the short term, there's no guarantee of long-term price support as other oil exporters including Russia, the U.S., and Iran rush in to fill the shortfall."