OPEC deal seeks support to extend
Despite how deep the oil prices fell over the past two years, the prospects for higher prices in the mid-term seem much more real than most people may guess. Although to rebalance the oil market is uneasy and requires more time and effort, but is still possible.
More experts agree that the results of the deal agreed by OPEC and non-OPEC members had been very positive so far and would bear the expected fruit in the upcoming months.
The Cartel and other exporters including Russia agreed to cut output by 1.8 million barrels per day (bpd) to reduce a price-sapping glut. The deal came in effect on January 1 and lasts six months.
Most OPEC members appear to be sticking to the deal so far. As of February 2017, the OPEC and participating non-OPEC countries achieved a conformity level of 94 percent, an increase of 8 percentage points over the January 2017 performance.
OPEC's cuts - and surprisingly high level of adherence to those production reductions - allowed the prices to partly regain the lost heights. However, the agreed period for those reductions was the first half of this year, leaving uncertainty for the second half-year.
Stressing that ‘once’ will not be enough, experts urge that in case, the major exporters don’t continue with this trend, then the oil price could drop back to where it was two years ago - the low $30s.
Meanwhile, the price gains from the OPEC deal have been capped by resurging U.S. shale output at the higher oil prices. Crude production in the U.S. has been rising steadily since the beginning of the year.
Data shows production there has stayed above the 9-million-barrel mark for the past four weeks. Future production also appears to be well on track. In the week ended March 24, U.S. drillers activated 21 more oil rigs, marking the 10th straight week they have increased, to a total of 652.
Due to this, global benchmark Brent crude has fallen towards $50 a barrel, having started the year at $57.
The supply pact could be extended in May if all major producers showed effective cooperation.
Saudi Energy Minister Khalid AlFalih told Bloomberg Television that OPEC would extend the deal beyond June if stockpiles were “still above the five-year average.”
According to OPEC’s own estimates from earlier this month, OECD commercial oil stocks in January were 278 million barrels above the five-year average.
Kuwait and several other states signaled a push towards an extension of the supply cut deal beyond the first six months of this year, but it depends on the backing of nonOPEC producers such as Russia, which have yet to fully meet their pledge on reductions.
Russia’s oil companies have cut their total oil production by 161,000 b/d since October, Tass reported earlier, while Russia's energy minister Aleksandr Novak has said that the country will meet its pledged 300,000 barrel/day (b/d) cut by end April.
Novak also announced that it is too early to talk about the expediency of extending the OPEC oil output cut deal.
Additional time and first of all, additional analysis of the market situation is needed for making a decision on more cuts, Novak told RT following the Joint OPEC/NonOPEC Ministerial Monitoring Committee (JMMC) meeting in Kuwait.
Over the weekend, a monitoring committee that oversees the OPEC's compliance with a deal to cut global production by 1.2 million barrels a day issued a statement directing oil producers to "review the oil market conditions," regarding the possible extension of the cuts. Several OPEC members announced support for an extension.
The committee will reconvene again in late April to complete their recommendation for a possible extension of OPEC's supply action. The final decision will be taken by the oil cartel on May 25.
Azerbaijan’s Energy Ministry is also optimistic on the outcome of the OPEC output cut deal struck in late 2016 and supports extending the current deal beyond its June deadline.
Ministry’s spokesperson Zamina Aliyeva told APA that Azerbaijan considers acceptable the decision on the extension of the Vienna Agreement.
"The execution of the oil cut deal is accompanied by a positive trend – the rising oil prices in the market. If at a regular meeting of OPEC, it will be decided to extend the agreement on the reduction of oil production, Azerbaijan is ready to take appropriate steps,” Aliyeva said.
The spokesperson reminded that Azerbaijan has fully fulfilled its obligations since January. The participation of Azerbaijan in joint oil production cuts is defined at 35,000 barrels per day.
The volume of daily production last month amounted to some 776,400 barrels, while the volume of daily export at 604,100 barrels of oil with some 50,000 barrels accounting for condensate and 26,800 barrels fall to a share of oil products. This January, the volume of daily production amounted to some 793,900 barrels, while the daily export was 617,000 barrels.
Prior to the landmark deal, the volume of production in the country was at the level of 37.72 million tons of oil, while daily output stood at 829,100 barrels. Oil production of the country in 2017 is forecasted to stand at 39.797 million, while average daily oil production will amount to 800,000-807,000 barrels.