Consensus builds towards Opec cut extension
Moves to extend the production cuts come as compliance with existing pledges increases
Abu Dhabi, 21 April (Argus) — Saudi Arabian oil minister Khalid al-Falih has raised hopes of an extension of the six-month Opec and non-Opec agreements to cut oil production, saying consensus is building among participating countries.
His Kuwaiti counterpart, Issam al-Marzouq, says consensus has been achieved among the six Gulf Co-operation Council (GCC) countries — Opec's Saudi Arabia, the UAE, Kuwait and Qatar, and non-Opec Oman and Bahrain — all of which are signatories to the agreements. "There is consensus-building that is taking place, but it is not done yet. We are talking to all countries," al-Falih said in Abu Dhabi on 20 April. The extension could be for either three or six months, he said.
The global oil market is nearing balance, with "supply and demand getting closer", state-owned Saudi Aramco chief executive Amin Nasser says, despite high US oil inventories and rising US shale output. "When you look at demand for 2016-17 and forecasts for 2018, we are looking at 4mn-5mn b/d of additional demand," Nasser says. But insufficient investment to develop new capacity could result in longer-term shortfalls, he says. Projects worth around a combined $1 trillion have been cancelled since oil prices started to fall in 2014, he says, equating to 5mn-10mn b/d of output "that otherwise would have materialised".
Opec and 11 non-Opec producers pledged late last year to scale back their combined crude production by almost 1.8mn b/d in the first half of this year to help expedite the rebalancing of global oil demand and supply. Libya and Nigeria are exempt from cutting their output because of security problems, while Iran was given special dispensation to boost production by 90,000 b/d over the six months, as it rebuilds output after nuclear-related sanctions were lifted last year.
Only Iran has significantly increased production since the agreements were first signed, with Iranian output put at 3.79mn b/d, just shy of the cap to which it agreed as part of the deals. The three are likely to maintain their statuses, should an extension be finalised, al-Marzouq says. Iran would be prepared to hold its output at 3.8mn b/d if other signatories to the deal continue to deliver on their pledges, oil minister Bijan Namdar Zanganeh says.
Going for it
Various Opec ministers have said all participating countries will need to be on board for an extension to take place, while al-Marzouq indicates that the six GCC members have forged a united front. "We have an agreement in the GCC — if we decide to go for it, we will all go for it. If we decide to go against it, we will all go against it," he says.
Opec secretary-general Mohammed Barkindo puts overall compliance with the cuts above the 94pc achieved in February. But this is largely down to overcompliance by Opec members such as Saudi Arabia and Angola (see table).
Russia, in particular, has been slow to cut production by the amount that it pledged, although it is now just 66,000 b/d shy of full compliance. Russia has cut its output by 2.2pc compared with an October baseline, still short of the 2.7pc reduction that oil minister Alexander Novak said would be achieved by the end of this month. Moscow pledged to pare production by 300,000 b/d from a baseline of around 11.18mn b/d. Novak insists that this means it will cut by "up to 300,000 b/d" in January-June, rather than an average of 300,000 b/d.
Al-Marzouq, who chairs the body charged with monitoring adherence to the cuts, says he is pleased with current Russian compliance and the trend of non-Opec compliance overall, which rose to 60pc in February from 40pc in January, and is on track to reach over 80pc this month. The monitoring committee was due to meet in Vienna on 21 April to formally assess compliance.
|Mar||Feb ||Agreed cut*||Actual cut*||Compliance (%)|
|*from Oct 16 baseline in Opec Monthly Oil Market Report, except for Iran from Jul 05, and Angola from Sep 16 †compliance measured relative to cut from 2005 baseline ‡exempt from production agreement|