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Opec to oil firms: 'We just want to talk': Update 2

05 Mar 2018 23:10 GMT
Opec to oil firms: 'We just want to talk': Update 2

Houston, 5 March (Argus) — Opec is conducting an unprecedented outreach to US independent producers, international oil companies and oil traders — but production cuts and prices are not on the agenda, Opec secretary general Mohammed Barkindo says.

That outreach follows an equally historic agreement between Opec and other major producing countries to cut production by around 1.7mn b/d since the start of 2017, which was recently extended until the end of 2018.

"Everyone has benefited from the declaration of producers, to bring us back on the path of sustainable growth," Barkindo said today at the CERAWeek conference in Houston.

"The industry needs to salute them on their courage. Despite the contraction in investment and dollar revenues, they decided to weather the storm" and implement output cuts, Barkindo said.

Opec in exchange just wants to talk. Barkindo is meeting with major US independent producers today, following discussions last year. Opec has also reached out to international oil companies and financial players involved in oil trade — all in the spirit of "breaking silos" and reaching "a common understanding that we all belong in the industry; that this market faces continuing demand growth and that every participant is needed to meet the demand."

US security laws would prevent any public company from coordinating production and prices, and Barkindo said that is not on the agenda. Opec members hope to learn from US shale producers how "they have been able to deploy the technology and (carried out) aggressive managerial decisions on cost yet maintaining drilling efficiency. These lessons could be applied to conventional players."

The two sides can also compare market outlooks and forecast models, he said.

The outreach to hedge funds and money managers likewise has been mutually educational, Barkindo said on the sidelines of the conference. "There is no doubt that the financial market are continuing to have impact on oil, particularly physical oil. This is one area that we have been battling to understand," Barkindo said, adding that the oil traders also learned something from the exchange. "Several of them had no experience or understanding of how physical oil markets work. It is a symbiotic relationship."

Individual Opec members may have different expectations from such talks. International oil companies should be expected to share in the burden of stabilizing the oil market, Nigeria's oil minister Emmanuel Ibe Kachikwu said on the sidelines of the conference.

"The Opec/non-Opec process has worked," Kachikwu said. "There are oil majors in our countries as well. It is realistic, since our countries carry the burden, and benefiting the producers as well" to have consultations, Kachikwu said.

The goal is not to pressure international companies to participate in mandatory cuts, but "we need to get some other companies active in this area to take some responsibility," he said.

Overall compliance to the Opec/non-Opec agreement to scale back oil production rose to a new record high of 133pc in January, according to the monitoring committee that oversees adherence to the cuts. The eventual fate of the partnership awaits discussions between Opec and its partners at conferences in June and November, Barkindo said.

Opec remains wary of even discussing the end of the output agreement for fear of spurring another internal fight for market share. But Barkindo said the alliance works as insurance toward the future volatility. The severe decline in prices in 2014-16 was the worst oil cycle on record and "the lessons we take from the cycle will be mitigated by the institutionalization of this alliance."

Regardless of Opec's intentions, rising US production could spur a change in strategy for all producers, IEA executive director Fatih Birol said today.

"We cannot ignore the growth coming from shale. It is coming very strongly and it will affect not only the behavior and strategy of established producers, it will affect everyone," Birol said. "No country is an island in the shale revolution, for oil and natural gas."

The IEA projects that the US alone will account for almost 60pc of global supply growth in 2018-23. US production growth will cover 80pc of the world's demand growth in the next three years, according to the IEA.