Global glut in crude oil is finally receding

CALGARY The agreement between OPEC and its allies to curb oil production appears to be finally draining the great crude glut that has been sloshing around in storage tanks around the world and weighing on prices.

Officials from the Organization of the Petroleum Exporting Countries and its allies such as Russia and Mexico met in Vienna on Friday and noted with some satisfaction that their agreement of curbing oil production by 1.8 million barrels per day till March 2018 is working — oil is being withdrawn from storage and global markets are moving toward equilibrium.

“The process is working fine so far,” Kuwait’s Oil Minister Issam Almarzooq told Bloomberg. “We hope that we can consume the remaining overhead in this period,” he said, adding that it’s not possible to say whether the cuts will need to be extended until closer to expiry.

Russian Energy Minister Alexander Novak also gave some indication of when the deal with OPEC countries such as Saudi Arabia might end. “A gradual, slow exit strategy” could begin between the second and fourth quarters of 2018 when “demand can absorb additional supply,” he said.

West Texas Intermediate fell 0.1 per cent to US$50.50 per barrel and Brent was trading at US$56.27, up 0.32 per cent on Friday.

Elevated oil storage levels have hung over energy markets for the past few years, but the deal between OPEC and other oil producing countries that has been in effect for nine months is finally shrinking crude inventories around the world. There was 340 million more barrels oil in storage in the Organization for Economic Co-operation and Development countries than the current five-year average in January but that fell to 209 million barrels in July, the last month for which data was available, GMP FirstEnergy analyst Martin King said. Demand for oil had increased over the summer, further drawing down storage levels, he said.

The trend toward lower storage should eventually help reverse bearishness on oil, Nine Points Partners portfolio manager Eric Nuttall said, adding that oil production growth in the U.S. has been flat for five months.